Question

Caleb Co. owns a machine that costs $42,800 with accumulated depreciation of $18,600. Caleb exchanges the machine for a newer model that has a market value of $53,000.
  
1. Record the exchange assuming Caleb paid $30,200 cash and the exchange has commercial substance.
2. Record the exchange assuming Caleb paid $22,200 cash and the exchange has commercial substance.

Answer 1

Journal entry :

1. Record the exchange assuming Caleb paid $30,200 cash and the exchange has commercial substance.

Date	accounts & explanation	Debit	Credit
	Accumlated dep (Old)	18600
	Machine a/c (New)	53000
	Loss on exchange of asset	1400
	Machine a/c (Old)		42800
	Cash a/c		30200
	(To record exchange)

Journal entry :

2. Record the exchange assuming Caleb paid $22,200 cash and the exchange has commercial substance.

Date	accounts & explanation	Debit	Credit
	Accumlated dep (Old)	18600
	Machine a/c (New)	53000
	Gain on exchange of asset		6600
	Machine a/c (Old)		42800
	Cash a/c		22200
	(To record exchange)