Question

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Stellar Company exchanged equipment used in its manufacturing operations plus $3,720 in cash for similar equipment used in the operations of Pearl Company. The following information pertains to the exchange.

Question 5 View Policies Current Attempt in Progress Stellar Company exchanged equipment used in its manufacturing operations plus $3,720 in cash for similar equipment used in the operations of Pearl Company. The following information pertains to the exchange. Stellar Co. Pearl Co. Equipment (cost) $34,720 $34,720 Accumulated depreciation 23,560 12,400 Fair value of equipment 15,500 19,220 Cash given up 3,720 Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter for the amounts.) Account Titles and Explanation Debit Credit Stellar Company: Εσπεπτ

Answer 1

	Exchange lacks Commercial Substance:
	Stellar Company:
	Account Titles and Explanation	Debit	Credit
	Equipment (new)	$ 14,880
	Accumulated Depreciation - Equipment	$ 23,560
	Equipment		$ 34,720
	Cash		$    3,720
	Pearl Company:
	Equipment (new)	$ 15,500
	Accumulated Depreciation - Equipment	$ 12,400
	Cash	$    3,720
	Loss on disposal of equipment	$    3,100
	Equipment		$ 34,720
	Exchange has Commercial Substance:
	Stellar Company:
	Account Titles and Explanation	Debit	Credit
	Equipment (new)	$ 19,220
	Accumulated Depreciation - Equipment	$ 23,560
	Equipment		$ 34,720
	Cash		$    3,720
	Gain on disposal of equipment		$    4,340
	Pearl Company:
	Equipment (new)	$ 15,500
	Accumulated Depreciation - Equipment	$ 12,400
	Cash	$    3,720
	Loss on disposal of equipment	$    3,100
	Equipment		$ 34,720

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