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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