Cannondale Company purchased an electric wax melter on April 30, 2014, by tradin

Question

Cannondale Company purchased an electric wax melter on April 30, 2014, by trading in its old gas model and paying the balance in cash. The following data relate to the purchase.

Prepare the journal entries necessary to record this exchange, assuming that the exchange (a) has commercial substance, and (b) lacks commercial substance. Cannondale’s year ends on December 31, and depreciation has been recorded through December 31, 2013

No.

Account Titles and Explanation

Debit

Credit

(a)

Exchange has commercial substance:

(To record current depreciation.)

(To record exchange of the machine.)

(b)

Exchange lacks commercial substance:

(To record current depreciation.)

(To record exchange of the machine.)

List price of new melter $26,544 Cash paid 16,800 Cost of old melter (5-year life, $1,176 salvage value) 18,816 Accumulated Depreciation-old melter (straight-line) 10,584 Secondhand fair value of old melter 8,736

Explanation / Answer

It is presumed that entries are to be passed as on 30th April, 2014

Date Account titles and explanations debit credit 30-Apr a) Exchange has commercial substance 2014 Depreciation Expense 1176 Accumulated depreciation 1176 (depn on the asset sold for 4 months) Equipment 25536 Accumulated depreciation 11760 Cash 16800 Equipment 18816 Gain on disposal of equipment 1680 (to record exchange of machine) b) Exchange has no commercial value Depreciation Expense 1176 Accumulated depreciation 1176 (depn on the asset sold for 4 months) Equipment 23856 Accumulated depreciation 11760 Cash 16800 Equipment 18816 35616 35616 (to record exchange of machine)

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