Question

Prepare the journal entries necessary to record the exchange, assuming (a) has commercial substance, and (b) lacks commercial substance.

*Practice Exercise 10-4 Marin Inc. purchased a commercial grade soft-serve ice cream machine on September 30, 2017. Marin traded in its existing machine and paid cash in the transaction. The details of the transaction are as follows: • List price of new freezer • Cash paid • Cost of old machine (4-year life, $1,170 salvage value) • Accumulated depreciation-old machine (straight-line) • Secondhand fair value of old machine $16,185 10,764 13,650 6,240 5,226 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 Marin recorded depreciation on the old machine through December 31, 2016. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Find our Book Value of Old Machine on 30th Sep 2017 Cost of Old Machine A 13650 Salvage Value B 1170 Useful Life C 4 Years (D-A-B) Depreciable Value (Straight Line 12480 Method) Accumulated Dep on 31 Dec 2016 E 6240 (F-D/4*9/12) Current year Depreciation (Current year depreication -Derpeciable value/useful life 9/12) here 9/12 because assets 2340 sold in 9 th month of the year, so we calculate depreciation only for 9 month) (G-E+F) Total Depreciation on Sales of Old 8580 Machine (H-A-G) Book Value on Sales of Old Machiner 5070 Purchse of New Freezer List Prize of Freezer 16185 Cash Paid -10764 K=H) Book Value of Old Machine Taken -5070 (L=I-J-K) Profit on Sales of Machiner 351 Journal Entries Particulars Debit Credit Date 30-Sep-19 Purchase of Freezer 16185 Cash 10764 Old Machinery 5070 profit on exchange of Old machine (Being Purchase of New Machinery) 351 16185 16185 30-Sep-19 Accumulated Depreciation 6240 Current Year Depreciation 2340 Old Machinery A/C 8580 8580 8580

Hence

Profit

on Disposal of Old machinery 351/-