Question

Your answer is partially correct. Try again. Culver Company purchased a heavy-duty truck on July 1, 2014, for $31,320. It was estimated that it would have a useful life of 10 years and then would have a trade-in value of $5,640. The company uses the straight-line method. It was traded on August 1, 2018, for a similar truck costing $46,964; $17,124 was allowed as trade-in value (also fair value) on the old truck and $29,840 was paid in cash. A comparison of expected cash flows for the trucks indicates the exchange lacks commercial substance. What is the entry to record the trade-in? (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Question 17 Your answer is partially correct. Try again. Culver Company purchased a heavy-duty truck on July 1, 2014, for $31,320. It was estimated that it would have a useful life of 10 years and then would have a trade-in value of $5,640. The company uses the straight-line method. It was traded on August 1, 2018, for a similar truck costing $46,964; $17,124 was allowed as trade-in value (also fair value) on the old truck and $29,840 was paid in cash. A comparison of expected cash flows for the trucks indicates the exchange lacks commercial substance. What is the entry to record the trade-in? (If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit T Trucks (new) T Trucks (old) Cash Click if you would like to Show Work for this question: Open Show Work

Answer 1

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Culver Company
If the transaction has a commercial substance than the transaction are to be recorded as their Fair Value.
	Amount $
Truck (cost)	31,320.00	A
Salvage Value	5,640.00	B
Depreciable value	25,680.00	C=A-B
Life (Years)	10.00	D
Annual depreciation	2,568.00	E=C/D
Depreciation for 2014 (6 months)	1,284.00	F=E/12*6	July to Dec 2014 is 6 months.
Depreciation for 2015 (12 months)	2,568.00	G=E
Depreciation for 2016 (12 months)	2,568.00	H=E
Depreciation for 2017 (12 months)	2,568.00	I=E
Depreciation for 2018 (7 months)	1,498.00	J=E/12*7	Jan to July 2018 is 7 months.
Accumulated depreciation	10,486.00	K=F+G+H+I+J
Book value of Truck	20,834.00	L=A-K
Fair value of Truck	17,124.00	M
Cash given up	29,840.00	N
Fair value of Truck exchanged	46,964.00	O
Profit on Truck exchanged	(3,710.00)	P=L-M
Journal entry	Debit $	Credit $
New Truck	46,964.00
Accumulated depreciation	10,486.00
Old Truck		31,320.00
Cash		29,840.00
Loss on exchange of Truck	3,710.00
	61,160.00	61,160.00