Question

Problem 2

In June 20x3, the Miller Corporation exchanged an office building with Jane Company in exchange for a casino. Details of the assets exchanged are as follows:

Miller’s Office Building

Cost $3,200,000 Accumulated depreciation 1,900,000 Fair value 2,000,000

Required –

Jane’s Casino

$4,000,000 1,800,000 1,800,000

For each of the following, write the journal entry on Miller’s and Jane’s books to record the exchange.

(a) As described above.

(b) The exchange is one office building for another. The configuration, timing and

risks of the cash flows of the incoming and outgoing assets are expected to be similar.

Answer 1

There are two journals – one in the book of M and the other is in the book of J.

In the book of M

Journal

Date	Accounts titles & explanation	P.ref	Debit, $	Credit, $
June 20x3	Casino		1,800,000
	Accumulated depreciation of building		1,900,000
	Office building			3,200,000
	Profit on exchange			500,000
	To record exchange of office building with casino at profit

Note: In the above journal Casino’s fair market value should be considered, since it comes in. Cost price should be considered for office building, since it goes out. The difference of debit and credit is profit amount.

In the book of J

Journal

Date	Accounts titles & explanation	P.ref	Debit, $	Credit, $
June 20x3	Office building		2,000,000
	Accumulated depreciation of Casino		1,800,000
	Loss on exchange		200,000
	Casino			4,000,000
	To record exchange of Casino with office building at loss

Note: In the above journal office building’s fair market value should be considered, since it comes in. Cost price should be considered for Casino, since it goes out. The difference of debit and credit is loss amount.