A company bought new heating system for $42,000 and was given a trade-in of $2,000 on an old heating system,so the company paid $40,000 cash with the trade-in.The old system had an original cost of $37,000 and accumulated depreciation of $34,000.If the transaction has commercial substance,the company should record the new heating system at:

A) $2,000.
B) $3,000.
C) $40,000.
D) $42,000.
E) $43,000.

Question

Jamie Nightlinger · Accepted Answer

Final Answer : D, Explanation :  The cost of the new heating system is $42,000 and the trade-in value of the old system is just an adjustment to the cost, therefore the new system should be recorded at $42,000. The original cost and accumulated depreciation of the old system are not relevant to the recording of the new system.

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