Two independent companies, Denver and Bristol, each own a warehouse, and they agree to an exchange...
Two independent companies, Denver and Bristol, each own a warehouse, and they agree to an exchange in which no cash changes hands. The following information for the two warehouses is available:
| Denver | Bristol | |
| Cost | $100,000 | $56,500 |
| Accumulated Depreciation | $50,000 | $23,000 |
| Fair Value | $44,500 | $44,500 |
Required:
| 1. | Assuming the exchange has commercial substance, prepare journal entries for Denver and Bristol to record the exchange. |
| 2. | Assuming the exchange does not have commercial substance, prepare journal entries for Denver and Bristol to record the exchange. |
Homework Answers
| Journal Entries assuming assuming the exchange has commercial substance. | ||
| In Books of Denver | Debit | Credit |
| Warehouse- New | 44500 | |
| Accum. Dep. | 50000 | |
| Loss on Exchange | 5500 | |
| Warehouse-Old | 100000 | |
| In Books of Bristol | Debit | Credit |
| Warehouse- New | 44500 | |
| Accum. Dep. | 23000 | |
| Gain on Exchange | 11000 | |
| Warehouse-Old | 56500 |
| Journal Entries assuming assuming the exchange has no commercial substance. | ||
| In Books of Denver | Debit | Credit |
| Warehouse- New | 33500 | |
| Accum. Dep. | 50000 | |
| Loss on Exchange | 16500 | |
| Warehouse-Old | 100000 | |
| In Books of Bristol | Debit | Credit |
| Warehouse- New | 50000 | |
| Accum. Dep. | 23000 | |
| Gain on Exchange | 16500 | |
| Warehouse-Old | 56500 |
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