Question
In: Accounting
On December 1, 2018, Soft Enterprise exchange equipment with Heavy Company. The information for both companies...
On December 1, 2018, Soft Enterprise exchange equipment with Heavy Company. The information for both companies follows:
|
Soft Enterprise |
Heavy Company |
|
|
Original Cost |
$120,000 |
$140,000 |
|
Accumulated Depreciation |
55,000 |
63,000 |
|
Fair value |
75,000 |
70,000 |
|
Cash paid |
5,000 |
Instructions:
Fill the following table assuming the exchange has commercial substance for both companies.
|
Soft Enterprise |
Heavy Company |
|
|
Calculate the gain or loss on disposal recognized by each company on the exchange. |
||
|
Calculate the cost of the equipment received by each company. |
Prepare the required journal entry on December 1, 2018 for Soft Enterprise assuming the exchange has commercial substance for both companies. Omit explanations.
|
Date |
Accounts Title and Explanation |
Ref. |
Debit |
Credit |
Fill the following table assuming the exchange lacks commercial substance for both companies.
|
Soft Enterprise |
Heavy Company |
|
|
Calculate the gain or loss on disposal recognized by each company on the exchange. |
||
|
Calculate the cost of the equipment received by each company. |
Prepare the required journal entry on December 1, 2018 for Soft Enterprise assuming the exchange lacks commercial substance for both companies. Omit explanations.
|
Date |
Accounts Title and Explanation |
Ref. |
Debit |
Credit |
Solutions
Expert Solution
Exchange has commercial substance:
| Soft Enterprise | Heavy Company | |
| Calculate the gain or (loss) on disposal recognized by each company on the exchange | 10000 | -7000 |
| Calculate the cost of the equipment received by each company | 70000 | 75000 |
New asset is recorded at fair value of old asset + cash paid or fair value of old asset - cash received.
Difference between fair value and book value of old asset is the gain on exchange.
Soft Enterprise:
| Date | Account Titles and Explanation | Debit | Credit |
| Dec. 1, 2018 | Cash | 5000 | |
| Accumulated depreciation | 55000 | ||
| Equipment (new) ($75000 - $5000) | 70000 | ||
| Equipment (old) | 120000 | ||
| Gain on disposal | 10000 |
Exchange lacks commercial substance:
| Soft Enterprise | Heavy Company | |
| Calculate the gain or (loss) on disposal recognized by each company on the exchange | 0 | 0 |
| Calculate the cost of the equipment received by each company | 60000 | 82000 |
New asset is recorded at book value of old asset + cash paid or book value of old asset - cash received.
No gain or loss on exchange since recorded at book value.
Soft Enterprise:
| Date | Account Titles and Explanation | Debit | Credit |
| Dec. 1, 2018 | Cash | 5000 | |
| Accumulated depreciation | 55000 | ||
| Equipment (new) [($120000 - $55000) - $5000] | 60000 | ||
| Equipment (old) | 120000 |
ekkarill92 answered 2 years agoRelated Solutions
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