Journal entries

Cuomo Touring Company owns a luxury motorcoach it uses in long-distance tours. The motorcoach originally cost the company $685,000, and depreciation taken to date amounts to $274,000. Cuomo is considering several alternative methods of disposing of the motorcoach and is concerned about the financial statement impact. The alternative methods of disposal available are as follows. (Treat each alternative independently.)

1. The motorcoach will be sold for $365,000 cash.

2. The motorcoach will be exchanged for a stock investment in Recreation, Ltd. The value of the stock is estimated at $425,000.

3. The motorcoach will be traded in on a new model valued at $925,000. A trade-in allowance of $400,000 will be granted by the manufacturer with the balance paid in cash.

4. The motorcoach will be traded for a limousine owned by Barton Transportation Company. In exchange for the motorcoach, Barton will give Cuomo Touring $60,000 cash, a three-year $340,000 note with a face rate of 8 percent, and the limousine. The motorcoach has an appraised value of $450,000 but fair market value of the limousine is not clear.

Required:

A. Determine the amount of gain or loss to be recognized in each of the alternatives.

B. Make the journal entries to record the events above.

Solution:

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