On December 31,Strike Company traded-in one of its batting cages for another one that has a cost of $500,000.Strike receives a trade-in allowance of $11,000.The old equipment had an initial cost of $215,000 and has accumulated depreciation of $185,000.Depreciation has been recorded up to the end of the year.The difference will be paid in cash.What is the amount of the gain or loss on this transaction?
A)loss of $11,000
B)no loss or gain will be recorded
C)loss of $19,000
D)gain of $11,000

Question

Quizplus · Accepted Answer

To begin with, we need to calculate the book value of the old batting cages. This is done by subtracting the accumulated depreciation from the initial cost:

Book value = Initial cost - Accumulated depreciation
Book value = $215,000 - $185,000
Book value = $30,000

Next, we need to calculate the gain or loss on the trade-in. This is done by comparing the book value of the old equipment with the trade-in allowance:

Gain or loss = Trade-in allowance - Book value
Gain or loss = $11,000 - $30,000
Gain or loss = -$19,000

Since the result is negative, it means that there is a loss on the transaction. Therefore, the correct answer is C, loss of $19,000.

On December 31,Strike Company Traded-In One of Its Batting Cages