Question

1. Paxten Company decides to exchange a machine used in its operations for a machine owned by Dorsett Company. Dorsett exchanged a machine plus $10,000 to Paxten Company. Dorsett Company's machine had a cost of $120,000 and accumulated depreciation of $45,000. Paxten Company's machine had a cost of $160,000 and accumulated depreciation of $70,000. The fair market value of Paxten Company's machine is $92,000. REQUIREMENT: RECORD THE ENTRY MADE BY PAXTEN COMPANY ONLY, ASSUMING THIS IS A COMMERCIAL SUBSTANCE EXCHANGE. 2. IN REGARD TO QUESTION #1, SHOW HOW YOU COMPUTED THE GAIN OR LOSS FOR THE MACHINE THAT PAXTEN COMPANY EXCHANGED. 3. IN REGARD TO QUESTION #1, WHAT MUST HAVE BEEN THE APPROXIMATE FAIR VALUE OF THE MACHINERY THAT DORSETT COMPANY EXCHANGED? 4. ASSUMING THE EXCHANGE IN QUESTION #1 IS A NOT A COMMERCIAL SUBSTANCE EXCHANGE, RECORD THE JOURNAL ENTRY THAT PAXTEN COMPANY WOULD PREPARE 5. EXPLAIN THE EFFECTS OF THE FOLLOWING ERROR ON THE BALANCE SHEET AND THE INCOME STATEMENT IN THE CURRENT YEAR AND THE SUCCEEDING YEARS.

Accounting in acquisition and disposition of property, plant and Equipment

Answer 1

Exchange Cost Poxten 160,000 70,000 90,000 Dorsett 120.000 45.00 Acc Dep 75.000 Net EMV 92.000 10000 Cashboot received Answer! Scencerio | Commercial substance exists Paxton's books Debit cash credit 10.000 70.ooo Cash Accumulated Depre ciation old New machine Gain on exchange old machine 2000 160.000 received cost of asset acquired - Fairvale of asset. Scorrandovedtcash Eboot) Paid - Gosh boot Anscoara Gain a loss an exchange . Fair value of asset scorrendored - Boo value of asset " na loss on exchange P2000 20.000 Q000

I 921000 Answer-3 Fairvalue of Paxton Machine less Cash Paid Estimated Fairuake of Doorset 10,000 Company Bacon substance Answer 4 Scenario a land of Commercial Paxton's books I Debit Accomodated depreciation 70,000 Old Neco machine I 901000 Old machine . credit 160,000 of fu of asset Scorrendered By asset son endered & Do not recognize gain use Bv Ccohich is love than f) as cast basis of acquired asset Scanned with CamScanner