FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:On January 1, 2016, Cougar Company purchased a piece of machinery and signed a zero-interest-bearing
note in payment. The note requires Cougar to pay 100,000 in three years. The interest rate that properly
reflected the time value of money at the time was 5% and an equipment dealer in St. Louis sells the
identical piece of machinery for $86,000. Cougar expected the machinery to have an 8 year useful life,
and $6,000 salvage value. Cougar depreciated the machine using the straight-line method. On June 30,
2018, Cougar exchanged the machinery for a newer model. In addition to the old equipment, Cougar paid
$10,000 cash. At the time of the exchange, the old machinery had a fair value of $70,000. Prepare the
journal entry to record this exchange, assuming the arrangement has commercial substance.
Prepare the journal entry to record the exchange, assuming the arrangement lacks commercial substance.
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