Q16SE - Horngren'S Financial And Managerial Accounting

Question

Exchanging plant assets White Corporation purchased equipment for \(22,000. White recorded total depreciation of \)19,000 on the equipment. On January 1, 2018, White traded in the equipment for new equipment, paying \(23,200 cash. The fair market value of the new equipment is \)25,100. Journalize White Corporation’s exchange of equipment. Assume the exchange had commercial substance.

Step-by-Step Solution

Answer

The gain or loss on exchanging of an equipment value is $1,100.

Step 1: Meaning of Plant Asset

Plant assets can be defined as all those assets that are employed in the business for their long-term use. It includes the machine acquired for the production of goods. 

Step 2: Calculate Exchange of Plant Asset

Particulars	Amount ($)	Amount ($)
Market Value of Asset		$25,100
Less:
Book value of asset	$3,000
Cash paid	23,200	(26,200)
Gain or loss		$ 1,100

Step 3: Journal entry for White corporation’s exchange

Date	Particulars	$ Debit	$ Credit
1 Jan 2018	New equipment	25,100
	Accumulated depreciation	19,000
	Loss on exchange of equipment	1,100
	Cash		23,200
	Equipment (Old)		22,000
	(To record the exchange of assets)