Concept of commercial substance affect the accounting

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Reference no: EM131293189

Durler Company purchased equipment on January 2, 2013, for $112,000. The equipment had an estimated useful life of 5 years with an estimated salvage value of $12,000. Durler uses straight-line depreciation on all assets. On January 2, 2017, Durler exchanged this equipment plus $12,000 in cash for newer equipment. The old equipment has a fair value of $50,000.

Accounting

Prepare the journal entry to record the exchange on the books of Durler Company. Assume that the exchange has commercial substance. Completed.

Equipment (new)                                                            94,000

                Equipment (book value)                                                               32,000

                Cash                                                                                      12,000

                Gain on sale of asset                                                      50,000

(to record the exchange of equipment)

Analysis

How will this exchange affect comparisons of the return on asset ratio for Durler in the year of the exchange compared to prior years?

Principles

How does the concept of commercial substance affect the accounting and analysis of this exchange?

Reference no: EM131293189

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