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Durler Company purchased equipment on January 2, 2021, for $112,000. The equipment had an estimated useful life

Question:

Durler Company purchased equipment on January 2, 2021, for $112,000. The equipment had an estimated useful life of 5 years with an estimated salvage value of $12,000. Durler uses straight-line depreciation on all assets. On January 2, 2025, Durler exchanged this equipment plus $12,000 in cash for newer equipment. The old equipment has a fair value of $50,000.


Accounting

Prepare the journal entry to record the exchange on the books of Durler Company. Assume that the exchange has commercial substance.

Analysis

How will this exchange affect comparisons of the return on asset ratio for Durler in the year of the exchange compared to prior years?

Principles
How does the concept of commercial substance affect the accounting and analysis of this exchange?

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Accounting Analysis The gain on the disposal increases income leading to a onetime increase in the r...View the full answer


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Intermediate Accounting

Intermediate Accounting

ISBN: 9781119790976

18th Edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

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Related Video

In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue

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