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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.
List price of new melter
$26,544
Cash paid
16,800
Cost of old melter (5-year life, $1,176 salvage value)
18,816
Accumulated Depreciation-old melter (straight-line)
10,584
Secondhand fair value of old melter
8,736
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
No.
Account Titles and Explanation
Debit
Credit
(a)
Exchange has commercial substance:
Depreciation Expense
1176
Accumulated Depreciation-Equipment
(To record current depreciation.)
Equipment
25536
11760
Cash
16800
18816
Gain on Disposal of Equipment
1680
(To record exchange of the machine.)
(b)
Exchange lacks commercial substance:
??
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