Cedric Company recently traded in an older model computer for a new model. The o

Question

Cedric Company recently traded in an older model computer for a new model. The old model’s book value was $200,000 (original cost of $440,000 less $240,000 in accumulated depreciation) and its fair value was $240,000. Cedric paid $64,000 to complete the exchange which has commercial substance.

Prepare the journal entry to record the exchange. (If no entry is required for an event, select "No journal entry required" in the first account field.)

Journal Entry Worksheet

Record the exchange of assets.

*Enter debits before credits

Explanation / Answer

New model computer $304,000

Old model computer $200,000

Profit on exchange of old $40,000 (240,000 - 200,000)

Cash $64,000

As the book value of old model computer is $200,000 and has a fair value of $240,000 at the time of exchange so the profit on exchange of old model computer is $240,000 - $200,000 = $40,000

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