1. Pueblo Co. acquires machinery by paying $10,000 cash and signing a $5,000, 2 year, zero interest bearing note payable. The note has a present value of $4,208, and Pueblo purchased a similar machine last month for $13,500. At what cost should the new equipment be recorded?
2. Stan Ott is evaluating two recent transactions involving exchanges of equipment. In one case, the exchange has commercial substance. In the second situation, the exchange lacks commercial substance. Explain to Stan the differences in accounting for these two situations.
3. Crowe Company purchased a heavy duty truck on July 1, 2009, for $30,000. It was estimated that it would have a useful life of 10 years and then would have a trade in value of $6,000. The company uses the straight line method. It was traded on August 1, 2013, for a similar truck costing $42,000; $16,000 was allowed as trade in value (also fair value) on the old truck and $26,000 was paid in cash. A comparison of expected cash flows for the trucks indicates the exchange lacks commercial substance. What is the entry to record the trade in?