Question

Instead of computing using trade-in allowance, compute for receiving cash for disposal of long term assets. A company traded an old forklift for a new forklift, receiving a $10,500 trade-in allowance and paying the remaining $37,200 in cash. The old car cost $39,000 and straight-line accumulated depreciation of $27,200 had been recorded as of the exchange date under the assumption it would last five years and have a $5,000 salvage value. a. What was the book value of the old forklift on the date of the exchange? b. What amount of gain or loss (indicate which) should be recognized in recording the exchange? c. What amount should be recorded as the cost of the new forklift?

Answer 1

Solution a:

Book value of the old forklift on the date of exchange = Cost - Accumulated depreciation =$39,000 - $27,200 = $11,800

Solution b:

Amount of gain or loss recognized on exchange = Exchange value - Book value = $10,500 - $11,800 = $1,300 loss

Solution c:

Cost of new forklift = Exchange value + Cash paid = $10,500 + $37,200 = $47,700