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Homework answers / question archive / A company bought new heating system to replace its old system that had an original cost of $37,000 and accumulated depreciation of $34,000

A company bought new heating system to replace its old system that had an original cost of $37,000 and accumulated depreciation of $34,000

Accounting

A company bought new heating system to replace its old system that had an original cost of $37,000 and accumulated depreciation of $34,000. The company also paid $40,000 cash. If the transaction has commercial substance, and the company lost $1,000 in this transaction, then the company should record the new heating system at:
 

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Answer:

The new display case should be recorded at $42,000

Explanation:

Cost of old display case $37,000
Less: Accumulated depreciation $34,000
Book value of old display case $3,000
Plus cash paid in exchange $40,000
Total $43,000
Less:Loss on exchange $1,000
new display case should be recorded at $42,000


Since the transaction has commercial substance, the loss on exchange is recognized and the new display case should be recorded at its $42,000 price.

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