Beck Company trades in old equipment for new equipment.The old equipment has a cost of $10,000 and accumulated depreciation of $8,000.Beck Company pays cash of $20,000.The fair value of the new equipment is $25,000.What is the gain or loss for Beck Company on the exchange of equipment?

Question

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The book value of the old equipment is $2,000 ($10,000 cost - $8,000 accumulated depreciation). The fair value of the new equipment is $25,000, and Beck Company pays $20,000 in cash. The total value given up is $22,000 ($2,000 book value of old equipment + $20,000 cash). Since the fair value of the new equipment is $25,000, Beck Company recognizes a gain of $3,000 ($25,000 - $22,000).

Beck Company Trades in Old Equipment for New Equipment