Dana Ashbrook Inc. has negotiated the purchase of a new piece of automatic equip

Question

Dana Ashbrook Inc. has negotiated the purchase of a new piece of automatic equipment at a price of $16,960 plus trade-in, f.o.b. factory. Dana Ashbrook Inc. paid $16,960 cash and traded in used equipment. The used equipment had originally cost $131,440; it had a book value of $89,040 and a secondhand fair value of $101,336, as indicated by recent transactions involving similar equipment. Freight and installation charges for the new equipment required a cash payment of $2,332. Prepare the general journal entry to record this transaction, assuming that the exchange has commercial substance. (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.) Assuming the same facts as in (a) except that fair value information for the assets exchanged is not determinable. Prepare the general journal entry to record this transaction. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is requiredselect "No Entry" for the account titles and enter 0 for the amounts.)

Explanation / Answer

1- If Exchange has commercial Substance-

2- If Exchange has Not commercial Substance-

If Fair Value can not be determined then New Assets will be recognized at Book value of old assets plus cash paid.

Account Head Debit Credit New Ewuipment $118,296.00        Old Equipment $89,040.00         Gain on Disposal $12,296.00         Cash $16,960.00 (To record purchase of new assets) New Ewuipment $2,332.00         Cash $2,332.00 (Installation Expense)

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