Make the appropriate journal entries to account for trade-in

Reference no: EM132670801

On December 15th, Terry's management decided to trade in one of their machines for a newer model. After long discussions with their auditors, Terry's management has decided that the change in capacity between the old and new machines makes this an exchange with substance. The old machine originally cost $1,250,000 and had been fully depreciated to its $93,800 salvage value. The new machine typically sells for $3,206,000, but the vendor offered Terry a $101,000 trade-in discount on the old machine if the balance is paid in cash. Terry's management was excited about the deal, since they would have been able to sell the old machine for only $82,500 if they had tried to dispose of it on the open market. Although the deal was completed on December 29", no journal entries have yet been recorded. Terry's management would like to know the effect of the sale on the following ratios:

Asset Turnover (Net Sales / average total assets)
Current Ratio
ROA Assignment: Calculations

Problem 1. Calculate each of the three (3) ratios before you make any adjustments.

Problem 2. Make the appropriate journal entries, if any, to account for the trade-in (including any necessary changes to income tax expense).

Reference no: EM132670801

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