Exercise $9\mathrm{.}7$

Page $421$

Willis Bus Service traded in a used bus for a new one. The original cost of the old bus was $$52,000.$ Accumulated depreciation at the time of the trade$-$in amounted to $$34,000.$ The new bus cost $$67,000,$ but Willis was given a trade$-$in allowance of $$10,000.$

a$.$ What amount of cash did Willis have to pay to acquire the new bus?

b$.$ Compute the gain or loss on the disposal for financial reporting purposes.

c$.$ Explain how the gain or loss would be reported in the company's income statement.

Solutions

a$.$ less $$10,000$ trade$-$in allowance$)$

b$.$ Trade$-$in allowance

$$10,000$

Less: Book value $-$ $$34,000)$

$(18,000)$

Loss on trade$-$in

$(8,000)$

c$.$ The $$8,000$ loss on trade$-$in is reported in Willis Bus Service's income statement following the amount of income from operations.