Clark Street Company purchases $50,000 in new equipment.In exchange,the company paid $38,000 cash and traded in old equipment.The old equipment originally cost $30,000 and had accumulated depreciation of $20,000 at the time of the exchange.The exchange has commercial substance.The old equipment has a trade-in allowance of $12,000.How would the company record this transaction?

Question

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The total cost of the new equipment is $50,000. The company paid $38,000 in cash, which is recorded as a credit to Cash. The old equipment had a book value (original cost - accumulated depreciation) of $10,000 ($30,000 - $20,000). This book value is credited to Equipment (old). The difference between the book value of the old equipment and the trade-in allowance ($12,000 - $10,000 = $2,000) is a gain on the exchange of assets, which is credited to Gain on Exchange of Assets. The new equipment is debited for its full cost of $50,000, and the accumulated depreciation on the old equipment is debited for its original amount of $20,000.

Clark Street Company Purchases $50,000 in New Equipment