accounting question?

Question

1) New equipment is 160,000 at beginning of fiscal year.
2) Estimated useful life of 4 years
3) Estimated residual value of $16,000.
4) First week of 4th year, equipment was traded for similar equipment priced at $200,000.
5) Trade-in allowance on old equipment was $24,000.
6) Cash paid was $16,000 & rest in note payables.

This is a homework problem that I can't solve. Don't worry. It is not a test question or anything. The text book doesn't go into detail about the problems.

1) For financial reporting purposes, how do you determine the cost of the new equipment acquired in the exchange.
2) Journalize the entry to record the exchange. My debit amount for accumulated depreciation for the equipment and debit for equipment is wrong. Can anybody help me? Thanks.

The book said the answer to question 1 is $196,000 and I'm not sure how they got this answer.

Answer 1

New equipment cost you $160,000 with residual value $16,000, so depreciation amt in each of the 4 yrs is (160,000 - 16,000)/4 = 36,000. After 3 yrs, the accd depn wld be 36k x 3 = 108,000 and the nbv 52,000. If trade-in allowance was 24k, that means the proceeds of the disposal of the old equipment was 24k. That means there was a loss on disposal of 52k - 24k, i.e. 28k.

Qn 1
I may be mistaken, but I thought you were told that the value of the new equipment was $200,000, so that is the amt I would use to book in the new equipment.

Qn 2
Journal entries
Dr Accd depn 108,000 (to close off the a/c)
Dr Loss on disposal of equipment 28,000
Dr New Equipment 200,000
Cr Old equipment 160,000 (to close off the a/c)
Cr Cash 16,000
Cr Notes payable 160,000

Note : The new equipment is valued at 200,000, paid for as follows - trade-in value of old equipment 24,000, cash of 16,000 and notes payable 160,000

Answer 2

Sandy is correct.