A company bought new heating system for $42,000 and was given a trade-in of $2,000 on an old heating system,so the company paid $40,000 cash with the trade-in.The old system had an original cost of $37,000 and accumulated depreciation of $34,000.If the transaction has commercial substance,the company should record the new heating system at:
A)$2,000.
B)$3,000.
C)$40,000.
D)$42,000.
E)$43,000.

Question

Quizplus · Accepted Answer

The cost of the new heating system is $42,000, which is the amount paid by the company after the trade-in value of $2,000 was deducted. The original cost and accumulated depreciation of the old system are not relevant to the cost of the new system. Therefore, the new heating system should be recorded at its purchase price of $42,000.

A Company Bought New Heating System for $42,000 and Was