question archive Carla Company purchased equipment on January 2, 2016, for $121,300
Carla Company purchased equipment on January 2, 2016, for $121,300
Subject:AccountingPrice:2.84 Bought5
Carla Company purchased equipment on January 2, 2016, for $121,300. The equipment had an estimated useful life of 5 years with an estimated salvage value of $12,800.
Carla uses straight-line depreciation on all assets. On January 2, 2020, Carla exchanged this equipment plus $12,200 in cash for newer equipment.
The old equipment has a fair value of $50,400.
What is the journal entry to record the exchange on the books of Carla Company. Assume that the exchange has commercial substance.
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DR equipment (new) 97,100
CR equipment(book value 34,500
CR Cash 12,200
CR gain on sale 50,400
Step-by-step explanation
finding book value of old equipment
purchase value-salvage valu
121300-12800
=108,500
then it depreciates on a straight line for 5 years
108500/5
=21,700 every year
because it has been used only for four years then,
21700*4
=86800
then
108500-86800
=21,700
add back salvage value
21700+12800
book value=34,500
to find the cost of the new equpment
=book value+cash added + fair value
=34500+12200+50400
=97,100
