On April 1 of the Current Year, a Company Traded

question 121

Essay

On April 1 of the current year, a company traded an old machine that originally cost $32,000 and that had accumulated depreciation of $24,000 for a similar new machine that had a cash price of $40,000.
1. Prepare the entry to record the exchange under the assumption that a $5,000 trade-in allowance was received and the balance of $35,000 was paid in cash. Assume the exchange transaction had commercial substance.
2. Prepare the entry to record the exchange under the assumption that instead of a $5,000 trade-in allowance, a $12,500 trade-in allowance was received and the balance of $27,500 was paid in cash. Assume the exchange transaction has commercial substance.

Understand the significance and impact of negative and affirmative covenants in lending agreements.

Recognize the concept of agency costs and how it affects the relationship between principals and agents.

Identify the conditions and consequences of payment default.

Understand the purpose and function of financial covenants in maintaining a borrower's financial stability.