Cosby Company acquired a smaller, but more efficient, gas heater on 6/30/12 by trading its electric model with a neighboring company. Cosby also received much-needed cash of $6,000 in the trade. The following data relate to the exchange:
Cash received 6,000
Cost of old heater (10-year life, $6,000 residual) 30,000
Accumulated depreciation—old heater (straight-line) 12,000
Second-hand market value of old heater 18,000
(a) Prepare the journal entries necessary to record this exchange. Assume that the transaction has commercial substance. Cosby’s fiscal year ends on 12/31 and depreciation has been recorded through 12/31/11.
(b) What (if anything) would change if it were determined that there is no commercial substance to the exchange?