On December 31, Strike Company traded in one of its batting cages for another one that has a cost of $500,000. Strike receives a trade-in allowance of $11,000. The old equipment had an initial cost of $215,000 and has accumulated depreciation of $185,000. Depreciation has been recorded up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction?
A) loss of $11,000
B) gain of $11,000
C) loss of $19,000
D) No loss or gain will be recorded.

Question

Quizplus · Accepted Answer

The old equipment has a book value of $30,000 ($215,000 - $185,000 = $30,000). Since the trade-in allowance is only $11,000, there is a loss of $19,000. The cost of the new batting cage ($500,000) is not relevant to the calculation of gain or loss.

On December 31, Strike Company Traded in One of Its