Exercise 10­-18 - Cannondale Company – Exchange of assets

Exercise 10­-18 - Cannondale Company – Exchange of assets

Cannondale Company purchased an electric wax melter on April 30, 2014, 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                                                                                $21,014

Cash paid                                                                                             13,300

Cost of old melter (5 ­year life, $931 salvage value)            14,896

Accumulated Depreciation ­old melter (straight-­line)         8,379

Second-hand fair value of old melter                                       6,916

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

(a) has commercial substance, and

(b) lacks commercial substance.

Cannondale’s year ends on December 31, and depreciation has been recorded through December 31, 2013.