Keva Co. trades in a vehicle with an original cost of $20,000 and accumulated depreciation of $18,000. The list price of the new vehicle is $25,000. In addition to the old vehicle, Keva also provides $24,000 cash. Assuming this transaction has commercial substance, the entry to record this transaction would include debits to which of the following accounts?Multiple select question.Vehicles for $25,000Loss on Exchange of Vehicles for $1,000Accumulated Depreciation - Vehicles for $18,000Gain on Exchange of Vehicles for $1,000Cash for $24,000
Question
Keva Co. trades in a vehicle with an original cost of 18,000. The list price of the new vehicle is 24,000 cash. Assuming this transaction has commercial substance, the entry to record this transaction would include debits to which of the following accounts?Multiple select question.Vehicles for 1,000Accumulated Depreciation - Vehicles for 1,000Cash for $24,000
Solution
The correct accounts to debit in this transaction would be:
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Vehicles for $25,000: This is the cost of the new vehicle that Keva Co. is acquiring.
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Accumulated Depreciation - Vehicles for $18,000: This is the total depreciation that has been accumulated on the old vehicle that is being traded in.
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Cash for $24,000: This is the additional cash that Keva Co. is paying in addition to the old vehicle to acquire the new vehicle.
The Loss on Exchange of Vehicles for 1,000 would not be debited in this transaction. The loss or gain on the exchange of vehicles is calculated as the difference between the book value of the old vehicle (original cost - accumulated depreciation) and the fair value of the new vehicle. In this case, the book value of the old vehicle is 20,000 - 25,000. Therefore, there is a loss on the exchange of vehicles of 25,000 - 1,000. This loss would be debited in the journal entry to record this transaction.
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