Kingbird Company purchased an electric wax melter on April 30, 2017, by trading

Question

Kingbird Company purchased an electric wax melter on April 30, 2017, by trading in its old gas model and paying the balance in cash. The following data relate to the purchase.

List price of new melter $16,116

Cash paid 10,200

Cost of old melter (5-year life, $714 salvage value) 11,424

Accumulated Depreciation-old melter (straight-line) 6,426

Secondhand fair value of old melter 5,304

Prepare the journal entries necessary to record this exchange, assuming that the exchange(a) has commercial substance, and (b) lacks commercial substance. Kingbird’s fiscal year ends on December 31, and depreciation has been recorded through December 31, 2016. (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.)

Explanation / Answer

Ans a Exchange has commercial substance First we will calcualte depreciation for the year Dr Cr Depreciation Expenses 714 Accumulated Depreciation 714 (11424-714)/5*4/12 Dr Cr Melter (new) (10200+5304) 15504 Accumulated Depreciation (6426+714) 7140 Cash 10200 Melter (old) $11,424 Gain on disposal of Melter $1,020 ans b Lacks commercial substance Dr Cr Depreciation Expenses 714 Accumulated Depreciation 714 (11424-714)/5*4/12 Dr Cr Melter (new) (11424-7140)+10200 $14,484 Accumulated Depreciation (6426+714) 7140 Cash 10200 Melter (old) $11,424 (being entry made to record exhange lacks commercial substance)

Related Questions

Navigate

• Browse (All)
• Browse K
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.