If the company receives a

If the company receives a - cash payment minus the $2,000...

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If the company receives a $12,000 trade-in allowance, a gain of $2,000 occurs. Cost of Truck Traded In $90,000 Less: Accumulated Depreciation (80,000) Net Book Value 10,000 Trade-in Value (12,000) Gain on Exchange ($ 2,000) Gains on similar exchanges are handled differently from gains on dissimilar exchanges. On a similar  exchange, gains are deferred and reduce the cost of the new asset. For example, after receiving a  $12,000 trade-in allowance on a delivery truck with a net book value of $10,000 and paying $89,000  in cash for a new delivery truck, the company records the cost of the new truck at $99,000 instead of  $101,000. The $99,000 cost of the new truck equals the $12,000 trade-in allowance plus the $89,000 
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Unformatted text preview: cash payment minus the $2,000 gain. Since the $12,000 trade-in allowance minus the $2,000 gain equals the old truck's net book value of $10,000, however, it is easier to think of the $99,000 cost as being equal to the old truck's net book value of $10,000 plus the $89,000 paid in cash. To record this exchange, the company debits vehicles for $99,000 (to record the new truck's recognized cost), debits accumulated depreciation-vehicles for $80,000 (to remove the old truck's accumulated depreciation from the books), credits vehicles for $90,000 (to remove the old truck from the books), and credits cash for $89,000....
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This note was uploaded on 11/14/2011 for the course ACCT 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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