Question

On August 1, Teal, Inc. exchanged productive assets with Flint, Inc. Teal’s asset is referred to below as “Asset A,” and Flint’ is referred to as “Asset B.” The following facts pertain to these assets. Asset A Asset B Original cost $105,600 $121,000 Accumulated depreciation (to date of exchange) 44,000 51,700 Fair value at date of exchange 66,000 82,500 Cash paid by Teal, Inc. 16,500 Cash received by Flint, Inc. 16,500 Assuming that the exchange of Assets A and B has commercial substance, record the exchange for both Teal, Inc. and Flint, Inc. in accordance with generally accepted accounting principles.

Account Titles and Explanation	Debit	Credit
Teal, Inc.’s Books 1. 2. 3. 4. 5. Flint, Inc.’s Books 1. 2. 3. 4. 5. Assuming that the exchange of Assets A and B lacks commercial substance, record the exchange for both Teal, Inc. and Flint, Inc. in accordance with generally accepted accounting principles. Account Titles and Explanation Debit Credit Teal, Inc.’s Books 1. 2. 3. 4. Flint, Inc.’s Books 1. 2. 3. 4. 5.

Answer 1

Account Titles and Explanation	Debit	Credit
Teal, Inc.’s Books 1.Machinery(B) 82500 2.Accumulated Depreciation-Machinery(A) 44000 3.Gain on Disposal of Machinery 4400 4.Machinery(A) 105600 5.Cash 16500 Flint, Inc.’s Books 1.Machinery(A) 66000 2.cash 16500 3.Accumulated Depreciation-Machinery(B) 51700 4.Gain on Disposal of Machinery 13200 5.Machinery(B)    121000 Teal, Inc.’s Books Machinery (B) ($82500 – $4,400)..................................... 78100 Accu: Depreciation—Machinery (A)    44000 Machinery (A)................................................................... 105600 Cash.................................................................................. 16500 Gain deferred:             Fair value $66000             Less: Book value   61600             Gain deferred $ 4400 Flint Inc.’s Books Cash   16500 Machinery (A)............................................................................... 55440 Accumulated Depreciation—Machinery (B).................................. 51700           Machinery (B)..................................................................... 121000           Gain on Disposal of Machinery..........................................                 2640 Calculation of gain:           Fair value of Asset B $82500           Less: Book value of Asset B 69300                               Gain on disposal $13200 Gain recognized = 16500/(16500+66000)*13200 = $2640    Fair value of asset acquired $66000    Less: Gain deferred ($13200 – $2640)     10560    Machinery A $55440