Use the following information for question 166 - 167.
Maverick Inc. exchanged an old vehicle for a new vehicle on August 31, 2014. The original cost of the vehicle was $45,000 on January 1, 2010. Depreciation was calculated using the straight line method over a ten-year useful life, with an estimated residual value of $3,000. The fair value of the old vehicle on August 31, 2014 was $21,500. The list price of the new vehicle was $30,000. Maverick received a $24,000 trade in allowance from the dealership and paid $6,000 cash for the new vehicle.
-The new machinery should be recorded on Maverick's books at
A) $30,000.
B) $27,500.
C) $24,000.
D) $23,500.

Question

Quizplus · Accepted Answer

The new machinery should be recorded at its fair value, which is $27,500. This is because the trade-in allowance is considered part of the cost of the new vehicle.

Use the Following Information for Question 166 - 167