Sheffield Company purchased an electric wax melter on April 30, 2017, by trading
ID: 2520274 • Letter: S
Question
Sheffield 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.
Prepare the journal entries necessary to record this exchange, assuming that the exchange (a) has commercial substance, and (b) lacks commercial substance. Sheffield’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.)
List price of new melter $22,436 Cash paid 14,200 Cost of old melter (5-year life, $994 salvage value) 15,904 Accumulated Depreciation-old melter (straight-line) 8,946 Secondhand fair value of old melter 7,384Explanation / Answer
Date Accounting Tittle & Explanation Debit Credit (a) Exchange has Commercial Substance 30/04/2017 Depreciation Expense $994.00 Accumulated Depreciation- Old Melter $994.00 (15904-994)/5X4/12 To Record Current Depreciation 30/04/2017 Accumulated Depreciation- Old Melter (8946+994) $9,940.00 Equipment - New Melter (7384+14200) $21,584.00 Gain on Exchange $1,420.00 Cash $14,200.00 Equipment- Old Melter $15,904.00 To Record Exchange of Asset b) Exchange Lacks Commercial Substance 30/04/2017 Depreciation Expense $994.00 Accumulated Depreciation- Old Melter $994.00 (15904-994)/5X4/12 To Record Current Depreciation 30/04/2017 Accumulated Depreciation- Old Melter (8946+994) $9,940.00 Equipment - New Melter (15904+14200-9940) $20,164.00 Cash $14,200.00 Equipment- Old Melter $15,904.00 To Record Exchange of Asset
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