On January 1, 2016, Cougar Company purchased a piece of machinery and signed a zero-interest-bearing note...

 

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. ICHY- 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. ICHY-