question archive Queen Corp

Queen Corp

Subject:AccountingPrice:6.89 Bought3

Queen Corp. traded an old machine with book value of $60,000 (cost $110,000 less accumulated depreciation $50,000) and a fair value of $100,000. Queen received a machine with a fair value of $90,000 plus cash of $10,000. Explain a journal entry entry for Queen, assuming no commercial substance.

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Debit......New Equipment.................90000

Debit.......Cash.......................................10000

credit.............Old equipment.............................60000

credit.............Gain on sale of old equipment 40000

 

(Sale of old machine in exchange for new assets and cash)

Step-by-step explanation

Fair value of machine sold is 100000 and Received $90000 value of equipment and $10000 cash.

So sale value of machine sold is fair value of assets received = 100000

Book value of machine sold = 60000

While sale value is 100000

So gain on sale =sale value - book value

=100000-60000

= 40000

 

Journal Entry

Debit......New Equipment.................90000

Debit.......Cash.......................................10000

credit.............Old equipment.............................60000

credit.............Gain on sale of old equipment 40000

 

(Sale of old machine in exchange for new assets and cash)

 

Note: in stead of gain on sale of old equipment account, we can also use profit and loss account

please see the attached file for the complete solution.

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