When a company exchanges machinery and receives a trade-in allowance greater than the book value, this transaction would be recorded with which of the following entries (assuming the exchange was considered to have commercial substance)a. debit Cash and Machinery; credit Accumulated Depreciation and Machinery b. debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Disposal c. debit Cash and Machinery; credit Accumulated Depreciation d. debit Machinery and Accumulated Depreciation; credit Machinery and Cash

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29-01-2020
Business

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When a company exchanges machinery and receives a trade-in allowance greater than the book value, this transaction would be recorded with which of the following entries (assuming the exchange was considered to have commercial substance)a. debit Cash and Machinery; credit Accumulated Depreciation and Machinery b. debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Disposal c. debit Cash and Machinery; credit Accumulated Depreciation d. debit Machinery and Accumulated Depreciation; credit Machinery and Cash

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agustinsr99 agustinsr99 · Answer 1 · 2020-01-30T14:45:52+01:00

Answer: The correct answer is "b. debit Cash and Accumulated Depreciation; credit Machinery, and Gain on Disposal".

Explanation: When a company exchanges machinery and receives a trade-in allowance greater than the book value, this transaction would be recorded with:

----------------------------------- . --------------------------------------------

Cash xxxx

Accumulated depreciation xxxx

Machinery xxxx

Gain on disposal xxxx

---------------------------------- . -----------------------------------------------

Cash is debited because the asset increase must be recorded, for the money entered for the sale.

The accumulated depreciation is debited to the fact that since the machinery leaves the estate, the account must be canceled.

Machinery is credited because when leaving the estate the account must be canceled.

"Gain on disposal" is credited as being an account of the positive result produced by the difference between the money received and the book value of the machinery.