on december 31, strike company has decided to trade-in one of its batting cages
ID: 2435210 • Letter: O
Question
on december 31, strike company has decided to trade-in one of its batting cages for another one that has a cost of $500000. The seller of the batting cage is willing to allow a trade-in amount of $40,000. the initial cost of the old equipment was 225,000 with an accumulated depreciation of $195,000. depreciation has been taken up to the end of the year. the difference will be paid in cash. assuming the exchange has commercial substance, what is the amount of the gain or loss on this transaction- a gain of $10,000
- a loss of $40,000
- a gain of $40,000
- a loss of $10,000
Explanation / Answer
The answer is "a gain of $10,000" and here's why: The original value was 225000, less the accumulated deprecation gives you a salvage value of 30,000. If they are getting $40,000 for a $30,000 machine, that is a gain of $10,000. The 500,000 is irrelevant because it is considered a separate transaction.
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