Loonyback Inc. exchanged an old vehicle for a new vehicle on August 31, 2021. The original cost of the vehicle was $ 45,000 on January 1, 2017. Depreciation was calculated using the straight-line method over a ten-year useful life, with an estimated residual value of $ 3,000. The fair value of the old vehicle on August 31, 2021 was $ 21,500. The list price of the new vehicle was $ 30,000. Loonyback received a $ 24,000 trade in allowance from the dealership and paid $ 6,000 cash for the new vehicle. The new machinery should be recorded on Loonyback's books at

Question

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The new machinery should be recorded at its fair value, which is $27,500. This is because the old vehicle was exchanged for a new vehicle, and the fair value of the old vehicle is used to determine the cost of the new vehicle.