Question

Swifty Corporation wishes to exchange a machine used in its operations. Swifty has received the following offers from other companies in the industry.

1.		Nash Company offered to exchange a similar machine plus $26,220. (The exchange has commercial substance for both parties.)
2.		Crane Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)
3.		Cheyenne Company offered to exchange a similar machine, but wanted $3,420 in addition to Swifty’s machine. (The exchange has commercial substance for both parties.)

In addition, Swifty contacted Ayayai Corporation, a dealer in machines. To obtain a new machine, Swifty must pay $106,020 in addition to trading in its old machine.

		Swifty		Nash		Crane		Cheyenne		Ayayai
Machine cost		$182,400		$136,800		$173,280		$182,400		$148,200
Accumulated depreciation		68,400		51,300		80,940		85,500		–0–
Fair value		104,880		78,660		104,880		108,300		210,900

For each of the four independent situations, prepare the journal entries to record the exchange on the books of each company. (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.)

No.	Account Titles and Explanation	Debit	Credit
1.	Swifty Corporation
	Nash Company
2.	Swifty Corporation
	Crane Company
3.	Swifty Corporation
	Cheyenne Company
4.	Swifty Corporation
	Ayayai Company
	(To record exchange of inventory)
	(To record cost of inventory)

Answer 1

Solution :

(1) Swiftly Corporation - Nash Company

Particulars	Swiftly Corporation	Nash Company
(a) Machine Cost	$ 182,400	$ 136,800
(b) Accumulated Depreciation	$ 68,400	$ 51,300
(c) Book Value (a-b)	$ 114,000	$ 85,500
(d) Fair Value	$ 104,880	$ 78,660
(e) Gain ( Loss) on Disposal (d-c)	($ 9,120)	($ 6,840)

Account Title and Explanation	Debit	Credit
Swiftly Corporation :
New Machine	$ 78,660
Cash	$ 26,220
Accumulated Depreciation	$ 68,400
Loss on Disposal	$ 9,120
Old Machine		$ 182,400
( To record the exchange of old machine with new machine and cash received $ 26,220)
Nash Company :
New Machine	$ 104,880
Accumulated Depreciation	$ 51,300
Loss on Disposal	$ 6,840
Old Machine		$ 136,800
Cash		$ 26,220
( To record the exchange of old machine with new machine and cash paid $ 26,220)

2. Swiftly Corporation - Crane Company

Particulars	Swiftly Corporation	Crane Company
(a) Machine Cost	$ 182,400	$ 173,280
(b) Accumulated Depreciation	$ 68,400	$ 80,940
(c) Book Value (a-b)	$ 114,000	$ 92,340
(d) Fair Value	$ 104,880	$ 104,880
(e) Gain ( Loss) on Disposal (d-c)	($ 9,120)	$ 12,540

Account Title and Explanation	Debit	Credit
Swiftly Corporation :
New Machine	$ 104,880
Accumulated Depreciation	$ 68,400
Loss on Disposal	$ 9,120
Old Machine		$ 182,400
( To record the exchange of old machine with new machine)
Crane Company :
New Machine	$ 92,340
Accumulated Depreciation	$ 80,940
Old Machine		$ 173,280
( To record the exchange of old machine with new machine.)

Note : There is lacks of commercial substance therefore Gain on exchange of assets will be adjusted with cost of machine.

Cost of Machine = $ 104,880 - $ 12,540

= $ 92,340

3. Swiftly Corporation - Cheyanne Company

Particulars	Swiftly Corporation	Cheyanne Company
(a) Machine Cost	$ 182,400	$ 182,400
(b) Accumulated Depreciation	$ 68,400	$ 85,500
(c) Book Value (a-b)	$ 114,000	$ 96,900
(d) Fair Value	$ 104,880	$ 108,300
(e) Gain ( Loss) on Disposal (d-c)	($ 9,120)	$ 11,400

Account Title and Explanation	Debit	Credit
Swiftly Corporation :
New Machine	$ 108,300
Accumulated Depreciation	$ 68,400
Loss on Disposal	$ 9,120
Old Machine		$ 182,400
Cash		$ 3,420
( To record the exchange of old machine with new machine and cash paid $ 3,420)
Cheyenne Company :
New Machine	$ 104,880
Accumulated Depreciation	$ 85,500
Cash	$ 3,420
Old Machine		$ 182,400
Gain on Disposal		$ 11,400
( To record the exchange of old machine with new machine.)

4. Swiftly Corporation - Ayayai Company

Particulars	Swiftly Corporation	Ayayai Company
(a) Machine Cost	$ 182,400	$ 148,200
(b) Accumlated Depreciation	$ 68,400	-
(c) Book Value (a-b)	$ 114,000	$ 148,200
(d) Fair Value	$ 104,880	$ 210,900
(e) Gain ( Loss) on Disposal (d-c)	($ 9,120)	-

Account Title and Explanation	Debit	Credit
Swiftly Corporation :
New Machine	$ 210,900
Accumalated Depreciation	$ 68,400
Loss on Disposal	$ 9,120
Old Machine		$ 182,400
Cash		$ 106,020
( To record the exchange of old machine with new machine and cash paid $ 106,020)
Ayayai Company :
Inventory	$ 104,880
Cash	$ 106,020
Sales		$ 210,900
( To record the exchange of inventory)
Cost of Goods Sold	$ 148,200
Inventory		$ 148,200
(To record cost of Inventory)

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