Question

specified. Points will be dedu I JUU Blue and Red Company enter into an agreement for the trade of certain nonmonetary assets The machines exchanged by Blue Company have a book value of $245,000 (cost $325.000 less accumulated depreciation of $80,000) and a fair value of $275,000. The trucks given up by Red Company have a book value of $ 260,000 (cost $ 350,000 less accumulated depreciation S 90.000 and a fair value of $ 290,000. In addition to the exchange of the assets, Blue agrees to pay Red Company $15,000 as part of the transaction Assume that the exchange lacks commercial substance. Instructions: Record the exchange transactions for Blue Company and Red Company. For Blue Date Account Titles Debit Credit Step 1: Assets given up Assets received Step 2: Determine gain or loss For Red Date Account Titles Debit Credit Step 1: Assets given up Assets received Step 2 Determine gain or loss

Answer 1

Requirement 1: Record the following journal entries in the books of Blue Inc

Date	Account Title and Explanation	Debit	Credit
	Trucks ($245,000 + $15,000)	$260,000
	Machinery		$245,000
	Cash		$15,000
	To record exchange of machinery for trucks

Step 1	Assets given up			Assets received
	Machinery	$245,000		Trucks	$260,000
	Cash	$15,000
	Total	$260,000		Total	$260,000
Step 2	Determine gain or loss
Total assets received		$260,000
Total assets given up		$260,000
Gain or loss		$0

Requirement 2: Prepare the following journal entries in the books of Red Inc

Date	Account Title and Explanation	Debit	Credit
	Cash	$15,000
	Machinery	$245,000
	Trucks		$260,000
	To record exchange of trucks for machinery

Step 1	Assets given up			Assets received
	Trucks	$260,000		Machinery	$245,000
				Cash	$15,000
	Total	$260,000		Total	$260,000
Step 2	Determine gain or loss
Total assets received		$260,000
Total assets given up		$260,000
Gain or loss		$0

Note: The acquired assets are valued at the book value of assets given in the case of exchanges that lack commercial substance.