Cheyenne Company purchased an electric wax melter on April 30, 2017, by trading in its old gas...

Question:

Cheyenne 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.

List price of new melter $18,960
Cash paid 12,000
Cost of old melter (5-year life, $840 salvage value) 13,440
Accumulated Depreciation-old melter (straight-line) 7,560
Secondhand fair value of old melter 6,240

Cheyenne's fiscal year ends on December 31, and depreciation has been recorded through December 31, 2016.

Prepare the journal entries necessary to record this exchange, assuming that the exchange

(a) has commercial substance, and

(b) lacks commercial substance.

Answer and Explanation:

A. With commercial substance


B....

Account Title DebitCredit
New melter18,960
Accumulated Depreciation7,560
Old melter 13,440
Cash 12,000
Gain 1,080

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