Answer: See explanation
Explanation:
1. Record the exchange assuming Caleb paid $30,000 cash and the exchange has commercial substance.
Dr Machine (new) $52000
Dr Loss on exchange of asset $2000
Dr Accumulated Depreciation $18400
Cr Equipment (Old) $42400
Cr Cash $30000
Nite that loss was calculated as:
= Market value of new machine - (Book value if old machine - Depreciation) - Cash paid
= $52000 - ($42400 - $18400) - $30000
= $52000 - $24000 - $30000
= -$2000
2. Record the exchange assuming Caleb paid $22,000 cash and the exchange has commercial substance
Dr Machine (new) $46000
Dr Accumulated Depreciation $18400
Cr Equipment (Old) $42400
Cr Cash $22000
Note that the value of the new machine was calculated as:
= Original cost + Cash paid - Accumulated Depreciation
= $42000 + $22000 - $18400
= $46000
