Question

Powell’s fiscal year-end is December 31, and it prepares financial statements just once a year, at year-end. The company has already recorded mostof its transaction and adjusting entries for the year ended December 31, 2018. The resulting trial balance follows:

Account	Debit	Credit
Cash	$   379,975
Accounts Receivable	608,230
Allowance for Doubtful Accounts		$       3,297
Inventory	317,810
Prepaid Insurance	234,972
Land	168,030
Buildings	836,928
Accumulated Depreciation – Buildings		209,232
Construction in Progress	411,000
Equipment	392,752
Accumulated Depreciation – Equipment		122,735
Notes Receivable	31,825
Discount on Notes Receivable		4,028
Accounts Payable		414,815
Notes Payable		829,350
Common Stock ($5 par)		217,500
Retained Earnings		905,625
Dividends	97,600
Sales Revenue		4,821,780
Advertising Expense	85,319
Cost of Goods Sold	2,974,065
Insurance Expense	42,931
Interest Expense	31,420
Rent Expense	20,160
Salaries and Wages Expense	691,705
Utilities Expense	203,640
	$7,528,362	$7,528,362

Omitted Transactions

T1.       Powell purchased equipment on December 31, 2018. The company gave a down payment of $9,500 and signed a 4-year promissory note for the balance due. The note requires Powell to make annual payments of $10,485 with the first payment due on December 31, 2019. The prevailing market rate of interest for comparable notes is 9%.

T2.       On December 31, 2018, Powell engaged in an exchange of buildings with ABC Co. The following information pertains to the building each company owned immediately before the exchange:

	Powell Co.	ABC Co.
Building cost	$231,048	$326,240
Accumulated depreciation	64,180	152,340
Fair value	144,000	130,680

In addition, Powell received $13,320 cash from ABC. Assume the exchange of buildings hascommercial substance.

T3.       On the same date (December 31, 2018), Powell engaged in another exchange of buildings, this one with XYZ Co. The following information pertains to the building each company owned immediately before the exchange:

	Powell Co.	XYZ Co.
Building cost	$128,988	$156,272
Accumulated depreciation	35,830	89,621
Fair value	135,000	119,475

In addition, Powell received $15,525 cash from XYZ. Assume the exchange of buildings lackscommercial substance.

– Instructions –

Prepare the journal entries to record the omitted transactions (T1 through T3).

Answer 1

Journal of Powell Co.
Sr. No.	Particulars	Debit (in $s)	Credit (in $s)
T1.	Equipment	51,440
	Bank		9,500
	Promissory Note Payable		41,940
	Equipment purchased
T2.	New Building	130,680
	Bank	13,320
	Accumulated Depreciation	64,180
	Loss on exchange of Building	22,868
	Old Building		231,048
	Building exchanged with ABC Co.
T3.	New Building	119,475
	Bank	15,525
	Accumulated Depreciation	35,830
	Old Building		128,988
	Gain on exchange of Building		41,842
	Building exchanged with XYZ Co.