I didn\'t include part A because it\'s the same as part B. I\'ve included the so
ID: 2580639 • Letter: I
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I didn't include part A because it's the same as part B. I've included the solutions that was provided. My question is what did they mean by "Cash boot is greater than 25% of the total amount given up" ? Which number is Cash boot what # am i supposed to be comparing to know that its greater than 25% of the total amount given up? what is the amount thats given up?
Marin 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 Cash paid Cost of old melter (5-year life, $854 salvage value) Accumulated Depreciation-old melter (straight-line) Secondhand fair value of old melter $19,276 12,200 13,664 7,686 6,344 Prepare the journal entries necessary to record this exchange, assuming that the exchange (a) has commercial substance, and (b) lacks commercial substance. Marin'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.) Exercise 10-18. Solution - Google Chrome Secure ! https://edugen.wileyplus.com/edugen/shared/assignment/test/qsolution.uni?itemid-E Depreciation Expense 854 Accumulated 834 (To record current depreciation.) Depreciation Expense $13,664 $854 $12,810 ÷ 5 $2,562 × 4/12 Equipment 18544 -$12,810 -$2,562 - $854 Depreciation-Equipment 8540 Gain on Disposal of Equipment $13,664 (8,540) 5,124 (6,344) $1,220 1220 Cost of old asset Less: Accumulated depreciation ($7,686$854 Book value of equipment (old) Less: Fair value of old asset Gain on disposal of equipment Cash 12200 Equipment 13664 (To record exchange of the equipment.) Cash paid Fair value of old asset Cost of new asset $12,200 6,344 $18,544 SHOW LIST OF ACCOUNTSSHOW SOLUTIONSHOW ANSWER LINK TO TEXT Note that the entries are same for both (a) and (b). Gain is not deferred because cash boot is greater than 25% of the total amount given up, which makes the transaction monetary in natureExplanation / Answer
Answer:- In simple terms cash boot means cash paid. As per your question cash boot greater than 25% of the total amount given up means cash paid is greater than 25% of the total amount given up (Total Consideration).
The general rule is to value the transactions at the fair value of the asset given up, unless the fair value of the asset received is more clearly evident and to recognize the gain or loss on the difference between the fair value and the carrying value of the asset. If cash is given in addition to the non-monetary asset, that is referred to as "BOOT".
In the given question-
Fair value of old asset = $6344
Cash paid = $12200
Total Consideration = $18544
Here the cash boot is $12200 and the total amount given up is the total consideration of $18544
Therefore, Cash boot ÷ Total. Amount given up = 12200/18544 = 66%
Hence the cash boot is greater than 25% of the total amount given up.
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