Question

Testbank Problem 142

Sheridan Corporation follows a policy of a 10% depreciation charge per year on all machinery and a 5% depreciation charge per year on buildings. The following transactions occurred in 2021:

March 31, 2021—

Negotiations which began in 2020 were completed and a building purchased 1/1/12 (depreciation has been properly charged through December 31, 2020) at a cost of $6,384,000 with a fair value of $4,112,000 was exchanged for a second building which also had a fair value of $4,112,000. The exchange had no commercial substance. Both parcels of land on which the buildings were located were equal in value, and had a fair value equal to book value.

June 30, 2021—

Machinery with a cost of $730,000 and accumulated depreciation through January 1 of $547,500 was exchanged with $445,000 cash for a parcel of land with a fair value of $692,000. The exchange had commercial substance.

Prepare all appropriate journal entries for Sheridan Corporation for the above dates. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
3/31/21
	(To record depreciation.)
3/31/21
	(To record exchange of buildings.)
6/30/21
	(To record depreciation.)
6/30/21
	(To record exchange of machineries.)

Answer 1

Journal Entry Answer General Journal Debit Credit Date March, 31 2021 Depreciation Expense $79,800 Accumulated Depreciation Buildings ($6,384,000 x 5% x 1/4) (To record the Depreciation) $79,800 March, 31 2021 Buildings ($6,384,000 - $2,952,600) $3,431,400 Accumulated Depreciation - Buildings ($6,384,000 x 5 % x 9 1/4) $2,952,600 Buildings (To record exchange of buildings.) $6,384,000 Depreciation Expense ($730,000 x 10% x 1/2) Accumulated Depreciation Machinery June, 30 2021 $36,500 $36,500 (To record the depreciation.) June, 30 2021 Land $692,000 $584,000 Accumulated Depreciation Machinery Gain on Disposal of Machinery $101,000 $730,000 Machinery $445,000 Cash (To record exchange of machineries.)

Calculation of Gain on Disposal of Machinery Explanations $692,000 $445,000 Fair Value of Parcel of Land Less: Cash Paid $247,000 $730,000 Cost of Machinery Less: Accumulated Depreciation ($547,500+ $36,500) $584,000 $146,000 Gain on Disposal of Machinery $101,000