Cable Corp. has entered into a transaction with Land Corp. Cable Corp will give its equipment...

Cable Corp. has entered into a transaction with Land Corp. Cable Corp will give its equipment to Land Corp. in exchange for Land’s equipment. Cable Corp will also pay Land Corp $30,000 cash. Cable Corp’s equipment originally cost $160,000 when it was purchased 2 years ago and currently has $50,000 of accumulated depreciation and an estimated fair value of $122,000. The fair value of Land Corp’s equipment is determined to be $152,000.

Required:

Provide the journal entry to record this transaction on Cable Corp. books assuming:

The exchange has commercial substance.
The exchange lacks commercial substance.

You will have a total of 2 entries. SHOW YOUR WORK & clearly label your answers as #1 and #2.

Solutions

Expert Solution

1 Exchange has commercial substance

	Cable Corp ( Received Equipment in exchange for other equipment & $30000)

	Fair value of equipment received	152000
Less	Net value equipment given	110000
	(160000-50000)
Less	Cash	30000
	Profit of sale of asset	12000

	Cable Corp

	Accoout name	Debit	Credit
	Equipment received	152000		Book at fairvalue of asset received
	Accumulated dep. on equipment transferred A/c	50000
	Profit on sale of equipment		12000	Difference is gain
	To Equipment transferred		160000
	Cash		30000
	( to record exchange of asset)



2 Exchange has no commercial substance
	Here, we will book new asset at the amount of net book value of asset transferred plus any additional consideration given

	New asset to be booked at amount
	Net boon value of asset transferred	110000
	(160000-50000)
Add	Cash given	30000
		140000

	Cable Corp

	Accoout name	Debit	Credit
	Equipment received	140000
	Accumulated dep. on equipment transferred A/c	50000
	To Equipment transferred		160000
	Cash		30000
	( to record exchange of asset)

ekkarill92 answered 1 year ago

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