Asked by Logan MacNeil on Jul 11, 2024
Verified
Presented below are two independent situations:
(a) Yount Company exchanged an old machine (cost $150000 less $90000 accumulated depreciation) plus $10000 cash for a new machine. The old machine had a fair value of $54000. Prepare the entry to record the exchange of assets by Yount Company.
(b) Lawson Company trades old equipment (cost $90000 less $54000 accumulated deprecia-tion) for new equipment. Lawson paid $36000 cash in the trade. The old equipment that was traded had a fair value of $54000. Prepare the entry to record the exchange of assets by Lawson Company. The transaction has commercial substance.
Fair Value
An estimate of the price at which an asset would change hands between a willing buyer and seller in an arm's length transaction, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.
Accumulated Depreciation
Represents the total depreciation of a fixed asset over its life up to the current date.
Exchange of Assets
Transactions where one asset is traded for another, typically without the use of cash, within the scope of business activities.
- Comprehend how acquiring, enhancing, and disposing of assets influences financial reports.
- Get ready and elucidate ledger records for transactions pertaining to the depreciation, disposal, and sale of assets.
Verified Answer
Equipment (new) ($54,000+$10,000) 64,000 Accumulated Depreciation-Equipment. 90,000Loss on Disposal of Plant Assets ($60,000 - $54,000) 6,000 Machine150,000 Cash10,000\begin{array}{lrr} \text {Equipment (new) \( (\$ 54,000+\$ 10,000) \) } &64,000\\ \text { Accumulated Depreciation-Equipment. } &90,000\\ \text {Loss on Disposal of Plant Assets (\$60,000 - \$54,000) } &6,000\\ \text { Machine} &&150,000\\ \text { Cash} &&10,000\\\end{array}Equipment (new) ($54,000+$10,000) Accumulated Depreciation-Equipment. Loss on Disposal of Plant Assets ($60,000 - $54,000) Machine Cash64,00090,0006,000150,00010,000
(b)
Equipment (new) 90,000 Accumulated Depreciation-Equipment 54,000 Equipment (old) 90,000 Cash36,000 Gain on Disposal of Plant Assets 18,000\begin{array}{lrr} \text {Equipment (new) } &90,000\\ \text { Accumulated Depreciation-Equipment } &54,000\\ \text { Equipment (old) } &&90,000\\ \text { Cash} &&36,000\\ \text { Gain on Disposal of Plant Assets } &&18,000\\\end{array}Equipment (new) Accumulated Depreciation-Equipment Equipment (old) Cash Gain on Disposal of Plant Assets 90,00054,00090,00036,00018,000
Fair value of old equipment $54,000 Book value of old equipment 36,000‾ Gain recognized $18,000‾‾ FV of asset exchanged $54,000 Plus: Cash 36,000‾ Cost of new equipment $90,000‾‾\begin{array}{ll}\text { Fair value of old equipment } & \$ 54,000 \\\text { Book value of old equipment } & \underline{36,000} \\\text { Gain recognized } &\underline{\underline{ \$ 18,000}} \\\text { FV of asset exchanged } & \$ 54,000 \\\text { Plus: Cash } & \underline{36,000} \\\text { Cost of new equipment } & \underline{\underline{\$ 90,000}}\end{array} Fair value of old equipment Book value of old equipment Gain recognized FV of asset exchanged Plus: Cash Cost of new equipment $54,00036,000$18,000$54,00036,000$90,000
Learning Objectives
- Comprehend how acquiring, enhancing, and disposing of assets influences financial reports.
- Get ready and elucidate ledger records for transactions pertaining to the depreciation, disposal, and sale of assets.
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