A company\'s Model B widget making machine that originally cost $77,000 (accumul

ID: 2568100 • Letter: A

Question

A company's Model B widget making machine that originally cost $77,000 (accumulated depreciation, $44,000). It has a current market value of $20,000. The company exchanged this machine for a similar widget making machine (a smaller one, Model A). The Model A originally cost $46,000 (accumulated depreciation to date, $37,400). It has a current market value of S18,000. The company received $10,000 cash on the exchange. The company should record the cost of the Model A widget making machine acquired at: (a) $11,667. (b) $18,000. (c) $20,000. (d) $25,000. 12.

Explanation / Answer

We will pass the following Journal entry for the given Transaction

Accounts Title and Explanation

Debit

Credit

Cash

10000

Model A_Machine

18000

Loss on Exchange of Model B [33000-10000-18000]

5000

Model B_Machine

33000

Therefore, Model A should be recorded at $ 18000. Hence, the right answer is option (b) $ 18000.