Question

Exercise 10-19 Indigo Company exchanged equipment used in its manufacturing operations plus $4,260 in cash for similar equipment used in the operations of Sweet Company. The following information pertains to the exchange. Equipment (cost) Accumulated depreciation Fair value of equipment Cash given up Indigo Co $39,760 26,980 17,750 4,260 Sweet Co. $39,760 14,200 22,010 Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance. (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.) Debit Credit Account Titles and Explanation Indigo Company Sweet Company Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange has commercial substance. (Credit account tities 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.) Account Titles and Explanation Indigo Company Debit Credit Sweet Company

Answer 1

Answer 1) Prepararation of journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance Account Titles and Explanation Debit (In Credit (in ) Indigo Company Equipment ($39,760(-) $26,980 (+) $4,260) Accumulated depreciation $17,040 $26,980 Equipment Cash $39,760 $4,260 (Torecord the exchange of Equipment) Defer all the gains since no cash is received Sveet Company Equipment New Accumulated depreciation Cash Loss on exchange (b $17,750 $14,200 $4,260 $3,550 Equipment (Old (Torecord the exchange of $39,760 ecognize the loss immediately hether the exchange has commercial substance or not.