Practice Exercise 10-04

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Kingbird Inc. purchased a commercial grade soft-serve ice cream machine on September 30, 2017. Kingbird traded in its existing machine and paid cash in the transaction. The details of the transaction are as follows:

		List price of new freezer		$15,355
		Cash paid		10,212
		Cost of old machine (4-year life, $1,110 salvage value)		12,950
		Accumulated depreciationold machine (straight-line)		5,920
		Secondhand fair value of old machine		4,958

Prepare the journal entries necessary to record this exchange, assuming that the exchange (a) has commercial substance, and (b) lacks commercial substance. Kingbirds fiscal year ends on December 31, and Kingbird recorded depreciation on the old machine through September 30, 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

2220 (a) Exchange has commercial substance: Depreciation Expense Accumulated Depreciat (To record current depreciation) 2220 Accumulated Depreciation 11740 Equipment 15170 Cash 10212 Equipment 12950 150 Gain on Disposal of Equ (To record exchange of the machine) (b) Exchange lacks commercial substance: Depreciation Expense 2220 ST 2220 Accumulated Depreciati (To record current depreciation) Accumulated Depreciation 11740 Equipment 11442 Cash 10212 Equipment 12950 (To record exchange of the machine)