Question

E7-3IA. (Learmning Objectives 1, 3, 4: Measure a plat asser's cost; calculate UOP doprie tion; analyze the effect ofa used asset trade-in) Concord Truck Company is a large company. The company uses the units-of-production (UOP) method to depreciate its trest To follow are facts about one Mack truck in the company's fleet. When this truck was acquired in 2018, the tractor-trailer rig had cost S420,000 and was expected to remain in senvic for 10 years or 1,000,000 miles. Its estimated residual value was S100,000. During 2018, the td was driven 77,000 miles: during 2019, 175,000 miles; and during 2020, 190,000 miles. After de truck was driven 45.000 miles in 2021, the company traded in the Mack truck for a Freightlin truck with a fair market value of $270,000. In addition to the trade-in of the Mack truck, Conocor Truck Company paid cash of S31 ,000 for the Freightliner truck. Determine Concord's gain α b on the transaction. Prepare the journal entry to record the trade-in of the old truck for the new oe Use two decimal places for depreciation cost per milde

Answer 1

Deprecation cost = (420000-100000)/1000000 = 0.32

Depreciation 2018 = 77000*0.32 = 24640

Deprecation 2019 = 1750000*0.32 = 56000

Deprecation 2020 = 190000*0.32 = 60800

Deprecation 2021 = 45000*0.32 = 14400

Accumulated depreciation = $155840

Market value of new truck		270000
Book value of old truck (420000-155840)	264160
Cash paid in exchange	31000	295160
Loss		25160

Journal entry

Truck (new)	270000
Accumulated depreciation – Truck (old)	155840
Loss on exchange of trucks	25160
Truck (0ld)		420000
cash		31000