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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. 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:
Expert Solution
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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