Question: h . Faubert exchanged an old machine for a similar machine on December 31, Year 5. Original cost of the old machine was $66,000; Updated

h. Faubert exchanged an old machine for a similar machine on December 31, Year 5. Original cost of the old machine was $66,000; Updated accumulated depreciation was $30,000. The newer machine had a fair value of $38,000; Faubert received $2,000 in the exchange. The exchange did not have commercial substance, but Faubert recorded the event as if the event had commercial substance.

A journal entry for Commercial Substance would be like this:

Cash $2,000

New Equipment 38,000

Accumulated Depreciation 30,000

Credit - Old Equipment 66,000

Credit - Gain on exchange of machinery 4,000

To record exchange of Old Equipment for New Equipment

A journal entry for Non-Commercial Substance would be like this if this is correct:

Cash $2,000

Accumulated Depreciation $30,000

New equipment $34,000

Credit - Old equipment $66,000

To record exchange of Old Equipment for New Equipment

What would the correcting journal entry be?

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