Question1 Marin Inc. purchased a commercial grade soft-serve ice cream machine o

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Question1 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 $25,730 17,112 21,700 9,920 8,308 .List price of new freezer . Cash paid Cost of old machine (4-year life, $1,860 salvage value) Accumulated depreciation-old machine (straight-line) . Secondhand fair value of old machine 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.) No. Account Titles and Explanation (a) Exchange has commercial substance Debit Credit (To record current depreciation) To record exchange of the machine) (b) Exchange lacks commercial substance: To record current depreciation)

Explanation / Answer

Solution:

Preparing Journal Entries Necessary to record this Exchange:

Calculation of Depreciation Expense:

No. Account Title and Explanation Debit Credit a Exchange has Commercial Substance Depreciation Expense $3,720 Accumulated Depreciation-Equipment $3,720 (To record current depreciation) Accumulated Depreciation-Equipment ($9,920 + $3,720) $13,640 Equipment $25,420 Cash $17,112 Equipment $21,700 Gain on Disposal of Equipment $248 (To record exchange of the machine) b Exchange lacks commercial substance Depreciation Expense $3,720 Accumulated Depreciation-Equipment $3,720 (To record current depreciation) Accumulated Depreciation-Equipment ($9,920 + $3,720) $13,640 Equipment $25,420 Cash $17,112 Equipment $21,700 Gain on Disposal of Equipment $248 (To record exchange of the machine)

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