1.
The company exchanged equipment having a cost of $10,000 with accumulated depreciation of $6,000 and the fair value of equipment is $4,600. The company paid $10,000 in cash extra for new equipment. Therefore the cost of new equipment will be considered as the sum of fair value of old equipment of $4,600 and cash of $10,000.
In the journal entry for recording purchase of new equipment the new equipment account will be debited with $14,600 and accumulated depreciation account will be debited with the amount of $6,000 and old equipment will be credited with the amount of $10,000 …show more content…
The company exchanged an old machine which costs $40,000 and an accumulated depreciation of $20,000 with a new machine and paid cash of $5,000 extra. The fair value of the old machine was $25,000 which means the fair value of the new machine was $20,000 ($25,000 less cash received of $5,000).
In the journal entry for recording purchase of new machine will be debited with $20,000 (which is the difference between fair value and cash received). In the entry cash account will be debited with the amount of $5,000 and the accumulated depreciation account will be debited with $20,000 which is the accumulated depreciation on the old equipment till the date of exchange and the old equipment will be credited with the amount of cost of equipment which is $40,000 (with its cost) and Gain will be credited with the difference between the sum of fair value of old machine and cost of old machine (net of accumulated depreciation) which is $5,000 calculated as under:
The journal entry for recording purchase of new machine is as under:
Machine-New (fair value-cash received)