When a company exchanges machinery and receives a trade-in allowance greater than the book value, this transaction would be recorded with the following entry (assuming the exchange was considered to have commercial substance):
A) debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Disposal
B) debit Machinery and Accumulated Depreciation; credit Machinery and Cash
C) debit Cash and Machinery; credit Accumulated Depreciation
D) debit Cash and Machinery; credit Accumulated Depreciation and Machinery

Question

Quizplus · Accepted Answer

When a company exchanges machinery and receives a trade-in allowance greater than the book value, it recognizes a gain on disposal. The entry involves debiting the new Machinery and Accumulated Depreciation, and crediting the old Machinery, Cash, and Gain on Disposal.

When a Company Exchanges Machinery and Receives a Trade-In Allowance