Martinez Company purchased an electric wax melter on April 30, 2017, by trading

Question

Martinez 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.

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

No.

Account Titles and Explanation

Debit

Credit

(a)

Exchange has commercial substance:

(To record current depreciation.)

(To record exchange of the equipment.)

(b)

Exchange lacks commercial substance:

(To record current depreciation.)

(To record exchange of the equipment.)

List price of new melter $21,172 Cash paid 13,400 Cost of old melter (5-year life, $938 salvage value) 15,008 Accumulated Depreciation-old melter (straight-line) 8,442 Secondhand fair value of old melter 6,968

Explanation / Answer

a & b) Depreciation Expense for the old melter for 2017 = [(Cost - Salvage Value)/Useful life]*4/12 (upto 30 April)

= [($15,008 - $938)/5 yrs]*4/12 = $938

Journal Entries (Amounts in $)

No. Account Titles and Explanation Debit Credit a) Exchange has commercial substance: Depreciation Expense 938 Accumulated Depreciation-Old Melter 938 (To record current depreciation) Melter (New) (Cash paid $13,400+Secondhand fair value of old melter $6,968) 20,368 Accumulated Depreciation-Old Melter ($8,442+$938) 9,380 Gain on disposal of Melter (Bal fig) ($20,368+$9,380-$15,008-$13,400) 1,340 Meter (Old) (cost) 15,008 Cash 13,400 (To record exchange of the equipment) b) Exchange lacks commercial substance: Depreciation Expense 938 Accumulated Depreciation-Old Melter 938 (To record current depreciation) Melter (New) 20,368 Accumulated Depreciation-Old Melter ($8,442+$938) 9,380 Gain on disposal of Melter (Bal. fig) 1,340 Meter (Old) 15,008 Cash 13,400 (To record exchange of the equipment)

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.