Measure a plant asset's cost; calculate UOP depreciation; analyze the effect of a used asset trade-in
Response to the following problem:
USA Truck Company is a large trucking company that operates throughout the United States. USA Truck Company uses the units-of-production (UOP) method to depreciate its trucks. USA Truck Company trades in trucks often to keep driver morale high and to maximize fuel economy. Consider these facts about one Mack truck in the company's fleet: When acquired in 2014, the tractor-trailer cost $430,000 and was expected to remain in service for 10 years or 1,000,000 miles. Estimated residual value was $20,000. During 2014, the truck was driven 81,000 miles; during 2015, 111,000 miles; and during 2016, 141,000 miles. After 75,000 miles in 2017, the company traded in the Mack truck for a less expensive Freightliner with a sticker price (fair market value) of $280,000. USA Truck Company paid cash of $25,000. Determine USA Trucks' gain or loss on the transaction. Prepare the journal entry to record the trade-in of the old truck on the new one.