Reference no: EM132354179

Question

Exercise 1

Pizza Company trades its used delivery cars for a new models at Hudson Toyota. The used cars have a book value of $60,000 (original cost $140,000 less $80,000 accumulated depreciation). The new cars have MSRP of $80,000. The fair value of the old cars based on estimation by third party is $50,000. After some negotiations between the Pizza Company and Hudson Toyota, the new cards would receive $10,000 discount and the trade in value of the old trucks in the amount of $55,000. The remaining portions is to be paid in cash.

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

Exercise 2:

On July 1, 2013, Pizza Company decided to trade-in their used equipment (ovens, refrigerators, ect.) for new models at Sears. The old equipment was initially purchased for $120,000 in January 2010. At that time, the useful life was determined to be 5 years. (The company uses the straight line to determine depreciation expense)

The new equipment has a listing price after all applicable discounts of $50,000. If company is to sell its old equipment to third party, they would realize $45,000 on average.

a. Prepare the journal entries assuming no commercial substance.

b. This time, there is no commercial substance and the company paid $10,000. Prepare the journal entry for the exchange!

c. This time, there is no commercial substance and the company received $10,000. Prepare the journal entry for the exchange!