Question

Crane Corporation wishes to exchange a machine used in its operations. Crane has received the following...

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

1. Cheyenne Company offered to exchange a similar machine plus $32,200. (The exchange has commercial substance for both parties.)
2. Ayayai Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)
3. Pina Company offered to exchange a similar machine, but wanted $4,200 in addition to Crane’s machine. (The exchange has commercial substance for both parties.)


In addition, Crane contacted Grouper Corporation, a dealer in machines. To obtain a new machine, Crane must pay $130,200 in addition to trading in its old machine.

Crane

Cheyenne

Ayayai

Pina

Grouper

Machine cost $224,000 $168,000 $212,800 $224,000 $182,000
Accumulated depreciation 84,000 63,000 99,400 105,000 –0–
Fair value 128,800 96,600 128,800 133,000 259,000
0 0
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Answer #1

Requirement 1: Prepare the journal entries in the books of purchaser and seller as follows

In the books of Crane

Date Account Title and Explanation Debit Credit
Cash $32,200
Machinery $96,600
Accumulated Depreciation - Machinery $84,000
Loss on disposal ($224,000 − $32,200 − 96,600 − $84,000) $11,200
                   Machinery $224,000
To record exchange of machinery

In the books of Cheyenne

Date Account Title and Explanation Debit Credit
Machinery $128,800
Accumulated Depreciation - Machinery $63,000
Loss on disposal ($168,000 + $32,200 − 128,800 − $63,000) $8,400
                   Cash $32,200
                   Machinery $168,000
To record exchange of machinery

Requirement 2: Prepare the journal entries in the books of purchaser and seller as follows

In the books of Crane

Date Account Title and Explanation Debit Credit
Machinery $128,800
Accumulated Depreciation - Machinery $84,000
Loss on disposal ($224,000 − $128,800 − $84,000) $11,200
                   Machinery $224,000
To record exchange of machinery

In the books of Ayayai

Date Account Title and Explanation Debit Credit
Machinery ($212,800 − $99,400) $113,400
Accumulated Depreciation - Machinery $99,400
                   Machinery $212,800
To record exchange of machinery

Requirement 3: Prepare the journal entries in the books of purchaser and seller as follows

In the books of Crane

Date Account Title and Explanation Debit Credit
Machinery $133,000
Accumulated Depreciation - Machinery $84,000
Loss on disposal ($224,000 + $4,200 − $133,000 − $84,000) $11,200
                   Cash $4,200
                   Machinery $224,000
To record exchange of machinery

In the books of Pina

Date Account Title and Explanation Debit Credit
Cash $4,200
Machinery $128,800
Accumulated Depreciation - Machinery $105,000
                   Machinery $224,000
                   Gain on disposal ($224,000 − 128,800 − $105,000 − $4,200 ) $14,000
To record exchange of machinery

Requirement 4: Prepare the journal entries in the books of purchaser and seller as follows

In the books of Crane

Date Account Title and Explanation Debit Credit
Machinery $259,000
Accumulated Depreciation - Machinery $84,000
Loss on disposal ($224,000 + $130,200 − $259,000 − $84,000) $11,200
                   Cash $130,200
                   Machinery $224,000
To record exchange of machinery

In the books of Grouper

Date Account Title and Explanation Debit Credit
Cash $130,200
Inventory $128,800
                    Sales Revenue $259,000
To record sales revenue
Cost of Goods Sold $182,000
                   Inventory $182,000
To record cost of goods sold
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