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