The Pipeline Company recently traded in a pick-up truck or a newer model truck. The old truck’s book value was $1,000 (original cost of $13,000 less $12,000 in accumulated depreciation) and its fair value was $800. Pipeline paid $14,000 to complete the exchange. The exchange has commercial substance.
a) Prepare the journal entry to record the exchange.
b) Assume the same facts in (a) above except that the fair value of the old truck is $1,500. Prepare the journal entry to record the exchange.