On December 31, Strike Company has decided to trade-in one of its batting cages for another one that has a cost of $500,000. The seller of the batting cage is willing to allow a trade-in amount of $11,000. The initial cost of the old equipment was $215,000 with an accumulated depreciation of $185,000. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction?
A) Loss of $11,000
B) Gain of $11,000
C) Loss of $19,000
D) No loss or gain will be recorded.

Question

Quizplus · Accepted Answer

To calculate the gain or loss on the transaction, we need to find the book value of the old batting cage, which is its initial cost of $215,000 minus accumulated depreciation of $185,000, or $30,000.

Since the trade-in amount is only $11,000, we would record a loss on the transaction of $19,000 ($30,000 - $11,000). This loss would be recognized in the current year's income statement. Therefore, the answer is C - loss of $19,000.

On December 31, Strike Company Has Decided to Trade-In One