On December 31, Strike Company has decided to trade-in one of its batting cages

Question

On December 31, Strike Company has decided to trade-in one of its batting cages for another one that has a cost of $558,558.00. The seller of the batting cage is willing to allow a trade-in amount of $38,542.77. The initial cost of the old equipment was $285,502.00 with an accumulated depreciation of $242,676.70. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss in a transaction with commercial substance?

Select the correct answer.

Gain of $38,542.77

Loss of $38,542.77

Gain of $4,282.53

Loss of $4,282.53

Explanation / Answer

cost of old machinery = $285,502 accumulated depreciation = $242,676.70 book value of old machine = $285,502-$242,676.70 = $42825.3 trade in amount = $38,542.77 therefore loss in transaction with commercial substance = book value -trade in amount =42825.3-38542.77 =$4282.53 Answer : loss of $4282.53

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