1. Price Company purchased a new machine on June 30, 2013 by trading in its old machine and paying the remaining balance in cash. The following data relate to the purchase:
List price of the new machine
$37,500
Cash paid
15,000
Cost of the old machine (10-year life, $500 residual value)
20,000
Accumulated depreciation- old machine (straight-line)
5,850
Secondhand fair value of the old machine
14,000
Price’s year ends on December 31, and depreciation has been recorded through December 31st, 2012. Prepare the journal entries to record the exchange, assuming that the exchange (a) has commercial substance, and (b) lacks commercial substance. (6pts)
Equipment 29,000
Accumulated Depreciation- Equipment 6,825 Gain on Disposal of Equipment 825 Equipment 20,000 Cash 15,000
(B) Exchange lacks commercial substance
Same entries as (A) because the cash is greater than 25% of the fair value of the exchange.
See Problem 10-10 (in suggested homework) and E-18.
2. Evergreen Company owns a 10,000-acre tract of timber, which was purchased in 2011 at a cost of $1,500 per acre. At the time of purchase, the land was estimated to have a value of $900 per acre without the timber. Evergreen Company has not logged the tract since it was purchased. In 2013, an
