Cannondale Company purchased an electric wax melter on April 30, 2014, by tradin
ID: 2472003 • Letter: C
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. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
No.
Account Titles and Explanation
Debit
Credit
(a)
Exchange has commercial substance:
(To record current depreciation.)
(To record exchange of the equipment.)
(b)
Exchange lacks commercial substance:
(To record current depreciation.)
(To record exchange of the equipment.)
List price of new melter $34,286 Cash paid 21,700 Cost of old melter (5-year life, $1,519 salvage value) 24,304 Accumulated Depreciation-old melter (straight-line) 13,671 Secondhand fair value of old melter 11,284Explanation / Answer
Has commercial substance
Depreciation = [cost of Asset- Salvage value]/ no of years
Adjustment ( 24,304 – 1519 ) /5 =4,557
=for months=, 4,557 x 4/12=$1,519
Depreciation Expense 1519
Accumulated depreciation 1519
Dr Melter new (21,700 + 11,284) 32,984
Dr Accumulated depreciation 15,190
(1,519 + 13,671)
Cr Gain on disposal of meter 2 ,170
Cr Melter(old) 24,304
Cr Cash 21,700
Lacks commercial substance
Depreciation Expense 1519
Accumulated depreciation 1519
Dr Melter new (21,700 + 11,284) 32,984
Dr Accumulated depreciation 15,190
(1,519 + 13,671)
Cr Gain on disposal of meter 2 ,170
Cr Melter(old) 24,304
Cr Cash 21,700
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