Assume that a business trades in an old cash register for a new one. Under the income tax method:

Question

Quizplus · Accepted Answer

With the income tax method, the cost of the new asset is recorded as the book value of the old asset (i.e. its original cost less accumulated depreciation) plus the cash amount paid or to be paid. This is known as a like-kind exchange, and any difference between the book value and the fair market value of the new asset is recognized as either a taxable gain or loss. Option A is incorrect because a loss can be recognized. Option B is incorrect because the cost of the new asset is not simply the cash paid, but also includes the book value of the old asset. Option D is incorrect because the asset account is not debited for the difference between the old and new assets, but rather for the entire cost of the new asset.

Assume That a Business Trades in an Old Cash Register