Question

Kingbird Company exchanged equipment used in its manufacturing operations plus $3,180 in cash for similar equipment used in the operations of Oriole Company. The following information pertains to the exchange.

		Kingbird Co.			Oriole Co.
Equipment (cost)		$29,680			$29,680
Accumulated depreciation		20,140			10,600
Fair value of equipment		13,250			16,430
Cash given up		3,180

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.)

Account Titles and Explanation	Debit	Credit
Kingbird Company:
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
Oriole Company:
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange has 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.)

Account Titles and Explanation	Debit	Credit
Kingbird Company
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
Oriole Company
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

Answer 1

Kingbird Company Calculation of Gain or Loss Kingbird Co. Oriole Co. 13250 16430 Fair value of old equipment Journal Enteries Date Particulars Debit in $ Credit in $ Lacks Commercial Substance Kingbird Co.: Equipment (9,540 + 3,180) a/c Dr. 12720 Accumulated depreciation a/c Dr. 20140 To Cash 3180 To Equipment (Old) 29680 New Equipment = Cash Paid + Fair Value of old 9540 Less: Bookvalue of equipment ($29,680-20,140) ($29,680-10,600) Gain or (Loss) on Exchange 19080 -2650 Dr. Dr. Oriole Co. Equipment (New) a/c Accumulated depreciation a/c Cash a/c Loss on exchange a/c To Equipment (Old) 13250 10600 3180 2650 Dr. Dr. 29680 Has Commercial Substance Kingbird Co.: Equipment (New) (3,180 + 13,250) a/c Dr. 16430 Accumulated depreciation a/c Dr. 20140 To Cash To Equipment (Old) To Gain on exchange New Equipment = Book Value of old + Cash Paid Defer all the Gains since no Cash Received 3180 29680 3710 Oriole Co. Equipment (New) a/c Accumulated depreciation a/c Cash a/c Loss on exchange a/c To Equipment (Old) Dr. Dr. Dr. 13250 10600 3180 Dr. 2650 29680