On October 1, Bentley Delivery Services acquired a new truck with a list price (fair market value) of $75,000. Bentley Delivery received a trade-in allowance (fair market value) of $24,000 on an old truck of similar type and paid cash of $51,000. The following information about the old truck is obtained from the account in the equipment ledger: cost, $56,000; accumulated depreciation on December 31, the end of the preceding fiscal year, $35,000; annual depreciation, $7,000. Assuming that the exchange has commercial substance, journalize the entries to record (a) the current depreciation of the old truck to the date of trade-in and (b) the transaction on October 1.
Answer:
a. Oct. 1 Depreciation Expense—Trucks 5,250
Accumulated Depreciation—Trucks5,250
Truck depreciation ($7,000 × 9 ÷ 12).
b. Oct. 1 Accumulated Depreciation—Trucks 40,250
Trucks75,000
Trucks56,000
Cash51,000
Gain on Exchange of Trucks8,250