Question

On August 1, Sarasota, Inc. exchanged productive assets with Ivanhoe, Inc. Sarasota’s asset is referred to below as “Asset A,” and Ivanhoe’ is referred to as “Asset B.” The following facts pertain to these assets. Asset A Asset B Original cost $117,120 $134,200 Accumulated depreciation (to date of exchange) 48,800 57,340 Fair value at date of exchange 73,200 91,500 Cash paid by Sarasota, Inc. 18,300 Cash received by Ivanhoe, Inc. 18,300 (a) Assuming that the exchange of Assets A and B has commercial substance, record the exchange for both Sarasota, Inc. and Ivanhoe, Inc. in accordance with generally accepted accounting principles. (Round answers to 0 decimal places, e.g. 5,275. 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.) Account Titles and Explanation Debit Credit Sarasota, Inc.’s Books Ivanhoe, Inc.’s Books

Answer 1

Solution:

a) With commerical substance:

Sarasota, Inc
Date	Account title and explanation	Debit	Credit
	Equipment(Fair value)	$91,500
	Accumulated depreciation(book value)	$48,800
	Old equipment (Book value)		$117,120
	Cash		$18,300
	Gain on sale of equipment ($73,200 - $68,320)		$4,880
	(For equipment exchanged)
Ivanhoe, Inc.
	Equipment (Fair value)	$73,200
	Cash	$18,300
	Accumulated depreciation (Book value)	$57,340
	Gain on exchange of equipment		$14,640
	Old equipment (book value)		$134,200
	(For equipment exchange)

b)No Commercail substance:

Sarasota, Inc
Date	Account title and explanation	Debit	Credit
	Equipment(Fair value)	$91,500
	Accumulated depreciation(book value)	$48,800
	Old equipment (Book value)		$117,120
	Cash		$18,300
	(For equipment exchanged)
Ivanhoe, Inc.
	Equipment (Fair value)	$73,200
	Cash	$18,300
	Accumulated depreciation (Book value)	$57,340
	Old equipment (book value)		$134,200
	(For equipment exchange)