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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

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

Required:
(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?

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