Question

Question 9

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

1.		Concord Company offered to exchange a similar machine plus $34,040. (The exchange has commercial substance for both parties.)
2.		Marigold Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)
3.		Swifty Company offered to exchange a similar machine but wanted $4,440 in addition to Skysong’s machine. (The exchange has commercial substance for both parties.)

In addition, Skysong contacted Nash Corporation, a dealer in machines. To obtain a new machine, Skysong must pay $137,640 in addition to trading in its old machine.

		Skysong		Concord		Marigold		Swifty		Nash
Machine cost		$236,800		$177,600		$224,960		$236,800		$192,400
Accumulated depreciation		88,800		66,600		105,080		111,000		–0–
Fair value		136,160		102,120		136,160		140,600		273,800

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.	Skysong Corporation
	Concord Company
2.	Skysong Corporation
	Marigold Company
3.	Skysong Corporation
	Swifty Company
4.	Skysong Corporation
	Nash Company
	(To record exchange of inventory)
	(To record cost of inventory)

Answer 1

Solution :

(1) Skysong Corporation - Concord Company

Particuars	Skysong Corporation	Concord Company
(a) Machine Cost	$ 236,800	$ 177,600
(b) Accumulated Depreciation	$ 88,800	$ 66,600
(c) Book Value (a-b)	$ 148,000	$ 111,000
(d) Fair Value	$ 136,160	$ 102,120
(e) Gain ( Loss) on Disposal (d-c)	($ 11,840)	($ 8,880)

Account Title and Explanation	Debit	Credit
Skysong Corporation :
New Machine	$ 102,120
Cash	$ 34,040
Accumulated Depreciation	$ 88,800
Loss on Disposal	$ 11,840
Old Machine		$ 236,800
( To record the exchange of old machine with new machine and cash received $ 34,040)
Concord Company :
New Machine	$ 136,160
Accumulated Depreciation	$ 66,600
Loss on Disposal	$ 8,880
Old Machine		$ 177,600
Cash		$ 34,040
( To record the exchange of old machine with new machine and cash paid $ 34,040)

(2) Skysong Corporation - Marigold Company

Particuars	Skysong Corporation	Marigold Company
(a) Machine Cost	$ 236,800	$ 224,960
(b) Accumulated Depreciation	$ 88,800	$ 105,080
(c) Book Value (a-b)	$ 148,000	$ 119,880
(d) Fair Value	$ 136,160	$ 136,160
(e) Gain ( Loss) on Disposal (d-c)	($ 11,840)	$ 16,280

Account Title and Explanation	Debit	Credit
Skysong Corporation :
New Machine	$ 136,160
Accumulated Depreciation	$ 88,800
Loss on Disposal	$ 11,840
Old Machine		$ 236,800
( To record the exchange of old machine with new machine)
Marigold Company :
New Machine	$ 119,880
Accumulated Depreciation	$ 105,080
Old Machine		$ 224,960
( 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 = $ 136,160 - $ 16,280

= $ 119,880

(3) Skysong Corporation - Swifty Company

Particuars	Skysong Corporation	Swifty Company
(a) Machine Cost	$ 236,800	$ 236,800
(b) Accumulated Depreciation	$ 88,800	$ 111,000
(c) Book Value (a-b)	$ 148,000	$ 125,800
(d) Fair Value	$ 136,160	$ 140,600
(e) Gain ( Loss) on Disposal (d-c)	($ 11,840)	$ 14,800

Account Title and Explanation	Debit	Credit
Skysong Corporation :
New Machine	$ 140,600
Accumalated Depreciation	$ 88,800
Loss on Disposal	$ 11,840
Old Machine		$ 236,800
Cash		$ 4,440
( To record the exchange of old machine with new machine and cash paid $ 4,440)
Swifty Company :
New Machine	$ 136,160
Accumlated Depreciation	$ 111,000
Cash	$ 4,440
Old Machine		$ 236,800
Gain on Disposal		$ 14,800
( To record the exchange of old machine with new machine and cash received $ 4,440)

(4) Skysong Corporation - Nash Company

Particuars	Skysong Corporation	Nash Company
(a) Machine Cost	$ 236,800	$ 192,400
(b) Accumlated Depreciation	$ 88,800	$ 0
(c) Book Value (a-b)	$ 148,000	$ 192,400
(d) Fair Value	$ 136,160	$ 237,800
(e) Gain ( Loss) on Disposal (d-c)	($ 11,840)	$ 0

Account Title and Explanation	Debit	Credit
Skysong Corporation :
New Machine	$ 273,800
Accumalated Depreciation	$ 88,800
Loss on Disposal	$ 11,840
Old Machine		$ 236,800
Cash		$ 137,640
( To record the exchange of old machine with new machine and cash paid $ 137,640)
Nash Company :
Inventory	$ 136,160
Cash	$ 137,640
Sales		$ 273,800
( To record the exchange of Inventory)
Cost of Goods Sold	$ 192,400
Inventory		$ 192,400
(To record the cost of Inventory)

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