1-Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance.
2- Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange has commercial substance.
Whispering Company exchanged equipment used in its manufacturing operations plus $3,900 in cash for similar equipment used in the operations of Metlock Company. The following information pertains to the exchange.
Whispering Co. |
Metlock Co. |
|||||
---|---|---|---|---|---|---|
Equipment (cost) |
$36,400 | $36,400 | ||||
Accumulated depreciation |
24,700 | 13,000 | ||||
Fair value of equipment |
16,250 | 20,150 | ||||
Cash given up |
3,900 |
S.No | Accounts Title and Explanation | Debit | Credit |
Journal Entries in the books of Metlock Co. : | |||
1) | Cash | $ 3,900 | |
Equipment | $ 19,500 | ||
Accumulated Depreciation- Equipment (Old) | $ 13,000 | ||
To Equipment | $36,400 | ||
(Being exchanged of assets without having commercial substance) | |||
2) | Cash | $ 3,900 | |
Equipment | $ 16,250 | ||
Accumulated Depreciation-Equipment (Old) | $ 13,000 | ||
Loss on sale of equipment | $ 3,250 | ||
To Equipment (Old) | $ 36,400 | ||
( Being Equipment is purchased in exchange of old Equipment) |
In the books of Whispering Co.
S. No | Accounts Title and Explanations | Debit | Credit |
1) | Equipment | $ 15,600 | |
Accumulated Depreciation - Equipment (Old) | $ 24,700 | ||
To Equipment (Old) | $ 36,400 | ||
To Cash | $ 3,900 | ||
(Being exchange of equipment without having commercial substance) | |||
2) | Equipment | $ 20,150 | |
Accumulated Depreciation-Equipment (Old) | $ 24,700 | ||
To Cash | $ 3,900 | ||
To Equipment | $ 36,400 | ||
To Gain on sale of Equipment (Old) | $ 4,550 | ||
( Being Equipment is purchased in exchange of Old equipment) | |||
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