Question

Sandhill Corporation wishes to exchange a machine used in its operations. Sandhill has received the following offers from other companies in the industry.

1.		Teal Company offered to exchange a similar machine plus $28,980. (The exchange has commercial substance for both parties.)
2.		Flint Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)
3.		Buffalo Company offered to exchange a similar machine, but wanted $3,780 in addition to Sandhill’s machine. (The exchange has commercial substance for both parties.)

In addition, Sandhill contacted Carla Corporation, a dealer in machines. To obtain a new machine, Sandhill must pay $117,180 in addition to trading in its old machine.

		Sandhill		Teal		Flint		Buffalo		Carla
Machine cost		$201,600		$151,200		$191,520		$201,600		$163,800
Accumulated depreciation		75,600		56,700		89,460		94,500		–0–
Fair value		115,920		86,940		115,920		119,700		233,100

For each of the four independent situations, prepare the journal entries to record the exchange on the books of each company.

No.

Account Titles and Explanation

Debit

Credit

1.

Sandhill Corporation

Teal Company

Sandhill Corporation

Flint Company

Sandhill Corporation

Buffalo Company

Sandhill Corporation

Carla Company

Answer 1

Situation No. 1

Journal entry in books of Sandhill Corporation

Cash	$28980
Machinery	$86940
Accumulated Depreciation	$75600
Loss on disposal of machinery	$10,080
Machinery		$201600

Journal entry in books of Teal Company

Machinery	$115920
Accumulated Depreciation	$56700
Loss on disposal of machinery	$7560
Cash		$28980
Machinery		$151,200

Situation No. 2

Journal entry in books ofSandhill Corporation

Machinery	115,920
Accumulated Depreciation	$75600
Loss on disposal of machinery	$10080
Machinery		$201,600

Journal entry in books of Flint Company

Machinery	$102060
Accumulated Depreciation	$89460
Machinery		$191,520

Situation No. 3

Journal entry in books of Sandhill Corporation

Machinery	$119700
Accumulated Depreciation	$75600
Loss on disposal of machinery	$10,080
Cash		$3780
Machinery		$201,600

Journal entry in books of Buffalo Company

Machinery	$115920
Accumulated Depreciation	$94500
Cash	$3780
Gain on disposal of machinery		$12600
Machinery		$201,600

Situation No. 4

Journal entry in books of Sandhill Corporation

Machinery	$233100
Accumulated Depreciation	$75600
Loss on disposal of machinery	$10080
Cash		$117,180
Machinery		$201600

Journal entry in books of Carla Company

Cash	$117,180
Used machine inventory	$115,920
Sales		$233,100

                               

Cost of goods sold	$163800
Machinery inventory		$163800