Machinery Acquired at a Cost of $80,000 and on Which

question 25

Essay

Machinery acquired at a cost of $80,000 and on which there is accumulated depreciation of $55,000
(including depreciation for the current year to date) is exchanged for similar machinery. Assume that the transaction has commercial substance. For financial reporting purposes, present entries to record the exchange of the machinery under each of the following assumptions:
(a)Price of new, $120,000; trade-in allowance on old, $4,000; balance paid in cash.
(b)Price of new, $120,000; trade-in allowance on old, $34,000; balance paid in cash.

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Definitions:

Receivables Financing

A financial practice where a company uses its accounts receivable as collateral to secure funding.

Commercial Paper

Commercial paper is a short-term, unsecured promissory note issued by corporations, typically used for the financing of accounts receivable, inventories, and meeting short-term liabilities.

Discount Period

The time frame during which a seller offers a buyer a reduction from the normal cost of a good or service, often to incentivize prompt payment.

Cash Sales

Cash sales refer to transactions where payment is made in full with cash at the time of the sale, without any credit.