Prepare the journal entries assuming commercial substance

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Question

JK Company trades its used delivery cars for a new models at Toyota. The used cars have a book value of $70,000 (original cost $150,000 less $90,000 accumulated depreciation). The new cars have MSRP of $90,000. The fair value of the old cars based on estimation by third party is $60,000.

After some negotiations between the JK Company and Toyota, the new cards would receive $20,000 discount and the trade in value of the old trucks in the amount of $65,000. The remaining portions is to be paid in cash.

Prepare the journal entries assuming a) commercial substance and b) no commercial substance.

Reference no: EM132354279

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