Question

Navajo Corporation traded a used truck (cost \(20,000, accumulated depreciation \)18,000) for a small computer with a fair value of \(3,300. Navajo also paid \)500 in the transaction. Prepare the journal entry to record the exchange. (The exchange has commercial substance.)

Short answer

Equipment is debited by $3,300, accumulated depreciation is debited by $18,000, trucks are credited by $20,000, cash is credited by $500 and gain on disposal of trucks is debited by $800 to record the exchange of trucks for equipment.

Step-by-step solution

Calculation of gain on disposal of trucks

$\begin{array}{c}\mathbf{Gain}\mathbf{}\mathbf{on}\mathbf{}\mathbf{Disposal}\mathbf{}\mathbf{of}\mathbf{}\mathbf{Trucks}\mathbf{=}\left(\mathrm{Equipment}+\mathrm{Accumulated}\mathrm{Depreciation}\right)\mathbf{-}\left(\mathrm{Truck}+\mathrm{Cash}\right)\\ \mathbf{=}\left(\$3,300+\$18,000\right)\mathbf{-}\left(\$20,000+\$500\right)\\ =\$800\end{array}$

Journal entry of purchase of truck

Date	Particulars	Debit ($)	Credit ($)
	Equipment	$3,300
	Accumulated depreciation	$18,000
	To Trucks		$20,000
	To Cash		$500
	To Gain on disposal of truck		$800
	To record the exchange of trucks