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19 November, 06:48

On December 31, Strike Company traded in one of its batting cages for another one that has a cost of $538,160. Strike receives a trade-in allowance of $31,185. The old equipment had an initial cost of $231,000 and has accumulated depreciation of $196,350. Depreciation has been recorded up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction?

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  1. 19 November, 07:16
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    Loss of $3,465

    Explanation:

    the journal entry to record the exchange should be:

    Dr Batting cage - new 538,160

    Dr Accumulated depreciation - batting cage old 196,350

    Dr Loss on exchange 3,465

    Cr Cash 506,975

    Cr Batting cage old - 231,000

    the carrying value of the old batting cage was = $231,000 - $196,350 = $34,650, but it was exchanged at $31,185, which results in a $3,465 loss ( = $34,650 - $31,185).
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