When a company exchanges machinery and receives a trade-in allowance less than the book value, this transaction would be recorded with the following entry:
A) debit Machinery and Accumulated Depreciation; credit Machinery and Cash
B) debit Cash and Machinery; credit Accumulated Depreciation
C) debit Cash and Machinery; credit Accumulated Depreciation and Machinery
D) debit Machinery, Accumulated Depreciation, and Loss on Disposal; credit Machinery and Cash

Question

Quizplus · Accepted Answer

When a company exchanges machinery and receives a trade-in allowance less than the book value, it is a loss on disposal. Therefore, the machinery and accumulated depreciation accounts need to be debited, and the cash account and accumulated depreciation and machinery accounts should be credited. Additionally, a Loss on Disposal account needs to be debited to record the loss. Thus, option D represents the correct entry format.

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