Question

On August 1, Splish, Inc. exchanged productive assets with Blossom, Inc. Splish’s asset is referred to below as “Asset A,” and Blossom’ is referred to as “Asset B.” The following facts pertain to these assets. Asset A Asset B Original cost $ 142,080 $ 162,800 Accumulated depreciation (to date of exchange) 59,200 69,560 Fair value at date of exchange 88,800 111,000 Cash paid by Splish, Inc. 22,200 Cash received by Blossom, Inc. 22,200 Assuming that the exchange of Assets A and B has commercial substance, record the exchange for both Splish, Inc. and Blossom, Inc. in accordance with generally accepted accounting principles. (Round answers to 0 decimal places, e.g. 5,275. 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 Splish, Inc.’s Books Blossom, Inc.’s Books eTextbook and Media Assuming that the exchange of Assets A and B lacks commercial substance, record the exchange for both Splish, Inc. and Blossom, Inc. in accordance with generally accepted accounting principles. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places e.g. 58,971. 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 Splish, Inc.’s Books Blossom, Inc.’s Books

Answer 1

Ans-1- Commercial Substance:

Journal entries in the books of Splish, Inc.

Date	Account Title and Explanation	Debit	Credit
	Asset B	$111,000
	Accumulated Depreciation	$59,200
	Asset A		$142,080
	Cash		$22,200
	Gain on Exchange of Asset A ($88,800)-($142,080-$59,200)		$5,920
	(To record the exchange of Asset)

Journal entries in the books of Blossom, Inc.

Date	Account Title and Explanation	Debit	credit
	Cash	22,200
	Asset A	88,800
	Accumulated Depreciation	69,560
	Asset B		162,800
	Gain on Exchange of Asset B ($111,000)-($162,800-$69,560)		17,760
	(To record the exchange of Asset)

2- Lack of Commercial Substance:

Journal Entries in the books of Splish, Inc.'s

Date	Account Title and Explanation	Debit	Credit
	Asset B ($111,000)-[($88,800)-($142,080-$59,200)	$105,080
	Accumulated Depreciation	$59,200
	Asset A		$142,080
	Cash		$22,200
	(To record the exchange of asset)

Journal Entries in the books of Blossom Inc.

Date	Account Title and Explanation	Debit	Credit
	Cash	$22,200
	Asset A (88,800-14,208)	$74,592
	Accumulated depreciation	$69,560
	Asset B		$162,800
	Gain on Disposal of Asset B		$3,552
	(To record the exchange of Asset B)

Working Note- Gain Recognised

=22,200 / (22,200+88,800)*17,760= $3,552

=88,800 /(22,200+88,800)* 17,760= $14,208

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