Question

Current Attempt in Progress Waterway Company exchanged equipment used in its manufacturing operations plus $3,360 in cash for similar equipment used in the operations of Wildhorse Company. The following information pertains to the exchange. Waterway Co Wildhorse Co. Equipment (cost) Accumulated depreciation $31,360 21,280 14,000 3,360 $31,360 11.200 17,360 Fair value of equipment Cash given up ally correct

Answer 1

Exchange lacks commercial substance:
Waterway Company:
Account Titles and Explanation	Debit	Credit
Equipment ($31,360 + $3,360 - $21,280)	$13,440
Accumulated Depreciation - Equipment	$21,280
Equipment		$31,360
Cash		$3,360
(To record the exchange of old equipment for new equipment)
Wildhorse Company:
Account Titles and Explanation	Debit	Credit
Cash	$3,360
Equipment	$14,000
Accumulated Depreciation	$11,200
Loss on sale of Equipment ($31,360 - $11,200 - $14,000 - $3,360)	$2,800
Equipment		$31,360
(To record the exchange of old equipment for new equipment)