Question

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

1. Teal Company offered to exchange a similar machine plus $29,440. (The exchange has commercial substance for both parties.)

2. Flint Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)

3. Buffalo Company offered to exchange a similar machine, but wanted $3,840 in addition to Sandhill’s machine. (The exchange has commercial substance for both parties.)

In addition, Sandhill contacted Carla Corporation, a dealer in machines. To obtain a new machine, Sandhill must pay $119,040 in addition to trading in its old machine.

Sandhill Teal Flint Buffalo Carla

Machine cost $204,800 $153,600 $194,560 $204,800 $166,400

Accumulated depreciation 76,800 57,600 90,880 96,000 –0–

Fair value 117,760 88,320 117,760 121,600 236,800

For each of the four independent situations, prepare the journal entries to record the exchange on the books of each company. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

No. Account Titles and Explanation Debit Credit

1. Sandhill Corporation

Teal Company

2. Sandhill Corporation

Flint Company

3. Sandhill Corporation

Buffalo Company

4. Sandhill Corporation

Carla Company

(To record exchange of inventory)

(To record cost of inventory)

Answer 1

Solution :-

No	Particulars	Debit	Credit
1.	Sandhill Corporation :-
	Cash	$29,440
	Machinery	$ 88,320
	Accumulated depreciation	$76,800
	Loss on disposal of machinery [ $204,800 - 76,800 -  117,760 ]	$10,240
	Machinery		$204,800
	Teal Company :-
	Machinery	$117,760
	Accumulated depreciation	$57,600
	Loss on disposal of machinery [ $153,600 - $57,600 - $88,320 ]	$7,680
	Cash		$29,440
	Machinery		$153,600
2.	Sandhill Corporation :-
	Machinery	$117,760
	Accumulated Depreciation-Machinery	$76,800
	Loss on Disposal of Machine [ $204,800 - 76,800 -  117,760 ]	$10,240
	Machinery		$204,800
	Flint Company :-
	Machinery [ $194,560 - 90,880 ]	$103,680
	Accumulated Depreciation-Machinery	$90,880
	Machinery		$194,560
3.	Sandhill Corporation :-
	Machinery	$121,600
	Accumulated Depreciation-Machinery	$76,800
	Loss on Disposal of Machine [ $204,800 - 76,800 -  117,760 ]	$10,240
	Machinery		$204,800
	Cash		$3,840
	Buffalo Company :-
	Machinery	$117,760
	Accumulated Depreciation-Machinery	$96,000
	Cash	$3,840
	Machinery		$204,800
	Loss on Disposal of Machinery [ $204,800 - $96,000 - $117,760 ]		$8,960
4.	Sandhill Corporation :-
	Machinery	$236,800
	Accumulated Depreciation-Machinery	$76,800
	Loss on Disposal of Machine   [ $204,800 - 76,800 -  117,760 ]	$10,240
	Machinery		$119,040
	Cash		$$204,800
	Carla Company :-
	Cash	$119,040
	Inventory	$ 117,760
	Sales Revenue		$236,800
	Cost of Goods Sold	$166,400
	Inventory		$166,400