When a company exchanges machinery and receives a trade-in allowance less than the book value,this transaction would be recorded with which of the following entry?
A)debit Cash and Machinery; credit Accumulated Depreciation and Machinery
B)debit Machinery,Accumulated Depreciation,and Loss on Exchange of Machinery; credit Machinery and Cash
C)debit Cash and Machinery; credit Accumulated Depreciation
D)debit Machinery and Accumulated Depreciation; credit Machinery and Cash

Question

Quizplus · Accepted Answer

When a company exchanges machinery and receives a trade-in allowance less than the book value, it results in a loss on exchange. Therefore, we need to debit the new machinery account, accumulated depreciation, and loss on exchange of machinery, and credit the old machinery account and cash. This will reflect the decrease in the value of the new machinery due to the loss incurred.

When a Company Exchanges Machinery and Receives a Trade-In Allowance