Question

The company exchanged an asset for a similar asset. The exchange was with another company in the same line of business. The old asset had a cost of $1,000 and accumulated depreciation of $850. The old asset had a market value of $400 on the date of the exchange.

Make the journal entry necessary to record the exchange assuming that the company received the new machine and no cash. [Hint: The total market value of assets received (cash plus new asset) is the same as the market value of the asset given up ($400).] If an amount box does not require an entry, leave it blank.

Make the journal entry necessary to record the exchange assuming that the company received the new machine and a "large" amount of cash of $300. [Hint: The total market value of assets received (cash plus new asset) is the same as the market value of the asset given up ($400).] If an amount box does not require an entry, leave it blank.

Make the journal entry necessary to record the exchange assuming that the company received the new machine and a "small" amount of cash of $80. [Hint: The total market value of assets received (cash plus new asset) is the same as the market value of the asset given up ($400).] If an amount box does not require an entry, leave it blank.

Answer 1

(ASSUMED TRANSACTION HAVE COMMERCIAL SUBSTANCE)

1) Asset Exchanged Without Cash Consideration

Book Value Of Old Asset (1000-850) =150

Fair Value (400)-Book Value (150) = Gain $250

The Asset Should Be Recorded At Fair Value. Because This Amount Is More Than The Net Book Value Of The Old Truck, A Gain Is Recorded For The Difference:

Accumulated Depreciation 850

New Asset                                   400

     To Gain                                               250

      To Old Asset                                   1000

(To Remove All Accounts Related To Old Asset, Setup New Asset At Its Fair Vale, And Record The Balance Gain)

2)CASH AMOUNT $300

CASH (300)+ FV OF ASSET(400)=700

700-BOOK VALUE(150)=550 (gain)

Accumulated Depreciation 850

Cash                                  300

New Asset                          400

     To Gain                                               550

      To Old Asset                                      1000

3)cash 80

80+400=470

470-150=320(gain)

Accumulated Depreciation 850

Cash                                  80

New Asset                          400

     To Gain                                               320

      To Old Asset                                      1000