Ask Question
BusinessBusiness
29 July, 16:23

Krasel Corp. exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was $90,000, and its accumulated depreciation at the date of exchange was $70,000. The asset received had a fair value of $50,000 and a book value of $45,000. The journal entry to record this exchange will include which of the following entries

A. credit to equipment-old for $90,000

B. credit to gain on exchange of asset for $30,000

C. debit to equipment-new for $50,000

D. debit to accumulated depreciation $70,000

+2
Answers (2)
  1. 29 July, 16:34
    0
    All options are applicable

    Explanation:

    Upon the exchange of the asset, the cost of the old asset needs to be removed from the asset account by crediting the old asset account with $90,000

    On the other hand, the market value of the new asset needs to be debited to new asset account i. e$50,000 and also the accumulated depreciation must debited to accumulated depreciation account.

    All in all, the difference between the credit and the debit entries is balancing credit as shown below

    Dr New asset $50,000

    Dr Accumulated depreciation $70,000

    Cr Old asset $90,000

    Cr gain on asset exchange (bal figure) $30,000
  2. 29 July, 18:32
    0
    all are included

    A. credit to equipment-old for $90,000 B. credit to gain on exchange of asset for $30,000 C. debit to equipment-new for $50,000 D. debit to accumulated depreciation $70,000

    Explanation:

    When a company exchanges assets in a transaction with commercial substance, they must use the fair market value of both assets to record the transactions.

    In this case, the company must recognize a gain with this asset exchange. The journal entry should be:

    Dr New equipment 50,000

    Dr Accumulated depreciation old equipment 70,000

    Cr Old equipment 90,000

    Cr Gain on exchange 30,000

    The gain on the exchange = value of new equipment + accumulated depreciation of old equipment - value of old equipment = $50,000 + $70,000 - $90,000 = $30,000

    If the transaction lacked commercial substance, then the gain/loss recognized by the company would have resulted only after the new asset was monetized (i. e. sold).
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Krasel Corp. exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was $90,000, ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers
You Might be Interested in
Which information system answers routine questions about daily business transactions? A. Decision support system B. Transaction processing system C. Executive information system D. Management information system
Answers (2)
On January 2, 2019, David loans his S corporation $10,000. By the end of 2019 David's stock basis is zero and the basis in his note has been reduced to $8,000. During 2020, the company's operating income is $10,000.
Answers (1)
Why is marketing inherently risky? what kinds of risks are involved in engaging in marketing?
Answers (1)
Given what you've learned about the needs of people in developing countries, what one device or service would you create if you were an entrepreneur? be specific!
Answers (1)
Mason Company has two manufacturing departments-Machining and Assembly. The company considers all of its manufacturing overhead costs to be fixed costs.
Answers (1)
New Questions in Business
Which of the following is a disadvantage of the sole proprietorship form of ownership
Answers (2)
Products that are essential for life, such as water or groceries, yield more marginal utility than rare products, such as diamonds or luxury vehicles. A. True B. False.
Answers (1)
Copy Center pays an average wage of $12 per hour to employees for printing and copying jobs, and allocates $18 of overhead for each employee hour worked. Materials are assigned to each job according to actual cost.
Answers (1)
Which of the following is true of internal recruiting? a. It increases recruitment time and costs. b. It targets job applicants that do not currently work for the organization. c. It improves employee commitment and morale. d.
Answers (2)
In a perpetual average cost system: a. The average is determined by dividing the total number of units sold by the cost of units purchased during the period. b. A new weighted-average unit cost is calculated each time additional units are purchased.
Answers (1)
Home » Business » Krasel Corp. exchanges equipment in a transaction that has commercial substance. The original cost of the asset surrendered was $90,000, and its accumulated depreciation at the date of exchange was $70,000.
Sign Up Forgot Password?