Crowe Company purchased a heavy-duty truck on July 1, 2011, for $30,120. It was

Question

Crowe Company purchased a heavy-duty truck on July 1, 2011, for $30,120. It was estimated that it would have a useful life of 10 years and then would have a trade-in value of $6,000. The company uses the straight-line method. It was traded on August 1, 2015, for a similar truck costing $38,681; $16,501 was allowed as trade-in value (also fair value) on the old truck and $22,180 was paid in cash. A comparison of expected cash flows for the trucks indicates the exchange lacks commercial substance. What is the entry to record the trade-in? (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Explanation / Answer

Annual depreciation as per straight line method = ($30120 - $6000)/10 = $2412

WDV on 1.aug 2015 = 30120 - 2412x4 = $20472

Jornal entry for new truck

Truck A/c Dr. $38681

Accumulated depreciation A/c $9648

Loss on Trade - in A/c $3971

To Cash A/c $22180

To Truck A/c Dr. $30120

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