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.
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.