On July 1, Twin Pines Co., a water distiller, acquired new bottling equipment with a list price (fair market value) of $220,000.

On July 1, Twin Pines Co., a water distiller, acquired new bottling equipment with a list price (fair market value) of $220,000. Twin Pines received a trade-in allowance (fair market value) of $45,000 on the old equipment of a similar type and paid cash of $175,000. The following information about the old equipment is obtained from the account in the equipment ledger: cost, $180,000; accumulated depreciation on December 31, the end of the preceding fiscal year, $120,000; annual depreciation, $12,000. Assuming that the exchange has commercial substance, journalize the entries to record (a)  the current depreciation of the old equipment to the date of trade-in and (b) the exchange transaction on July 1.

Answer:

a.  July 1 Depreciation Expense—Equipment 6,000

Accumulated Depreciation—Equipment 6,000

Equipment depreciation ($12,000 × 6 ÷ 12).

b.  July 1 Accumulated Depreciation—Equipment 126,000

Equipment220,000

Loss on Exchange of Equipment 9,000

Equipment180,000

Cash175,000