Question

Sheffield Company purchased an electric wax melter on April 30, 2020, 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		$16,116
Cash paid		10,200
Cost of old melter (5-year life, $714 salvage value)		11,424
Accumulated Depreciation-old melter (straight-line)		6,426
Secondhand fair value of old melter		5,304

Prepare the journal entries necessary to record this exchange, assuming that the exchange (a) has commercial substance, and (b) lacks commercial substance. Sheffield’s fiscal year ends on December 31, and depreciation has been recorded through December 31, 2019. (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.)

Answer 1

a.

Account Titles and explanation	Debit	Credit
Depreciation expenses [(11424-714)/5*(4/12)]	714
Accumulated depreciation		714
Melter (new)	15504
Accumulated depreciaiton (6426+714)	7140
Gain on disposal of melter (5304-(11424-7140)		1020
Melter (old)		11424
Cash		10200

b.

Account Titles and explanation	Debit	Credit
Depreciation expenses	714
Accumulated depreciation		714
Melter (new)	15504
Accumulated depreciation	7140
Gain on disposal of melter		1200
Melter (old)		11424
Cash		10200