Question

The production manager of Flint Corporation wants to acquire a different brand of machine by exchanging the machine that it currently uses in operations for the brand of equipment that others in the industry are using. The brand being used by other companies is more comfortable for the operators because it has different attachments that allow the operators to adjust the controls for a variety of arm and hand positions. The production manager has received the following offers from other companies:

1- Secord Corp. offered to give Flint a similar machine plus $24,840 in exchange for Flint’s machine.

2- Bateman Corp. offered a straight exchange for a similar machine with essentially the same value in use.

3- Shripad Corp. offered to exchange a similar machine with the same value in use, but wanted $8,640 cash in addition to Flint’s machine. Assume that the exchange is nonmonetary and lacks commercial substance.

4- The production manager has also contacted Ansong Corporation, a dealer in machines. To obtain a new machine from Ansong, Flint would have to pay $100,440 and also trade in its old machine.

Flint’s equipment has a cost of $172,800, a net book value of $118,800, and a fair value of $99,360. The following table shows the information needed to record the machine exchange between the companies:

	Secord	Bateman	Shripad	Ansong
Machine Cost	$129,600	$158,760	$172,800	$140,400
Accumulated depreciation- Machinery	48,600	76,680	81,000	0
Fair Value	74,520	99,360	108,000	199,800

For each of the four independent situations, assume that Flint accepts the offer. Prepare the journal entries to record the exchange on the books of each company. Assume that transactions 2 and 3 lack commercial substance for Bateman Company and Shripad Company respectively.

Transaction 1

Flint Corporation (5 entries)

Account Titles	Debit	Credit

Secord Company ( 5 entries) same as above

Transaction 2:

Flint Corporation (4 entries)

Bateman (3 entries)

Transaction 3: Flint Corporation (5 entries)

Shripad Corporation ( 4 entries)

Transaction 4:

Flint Corporation ( 5 entries)

Ansong Corporation

Account Titles	Debit	Credit
(To record sale with trade-in)
(To record Cost of Goods Sold)

Answer 1

Transaction 1
Flint Corporation
Account Titles	Debit	Credit
Cash	$   24,840.00
Machinery (New) (99,360 - 24,840)	$   74,520.00
Accumulated Depreciation–Machinery (172,800 - 118,800)	$   54,000.00
Loss on Disposal of Machinery  (118,800 - $99,360)	$   19,440.00
Machinery (Old)		$ 172,800.00
Secord Company
Machinery (New)	$   99,360.00
Accumulated Depreciation–Machinery	$   48,600.00
Loss on Disposal of Machinery  (129,600 - 48600) - 74520	$6,480
Machinery (Old)		$ 129,600.00
Cash		$   24,840.00
Transaction 2:
Flint Corporation
Machinery (New)	$   99,360.00
Accumulated Depreciation–Machinery	$   54,000.00
Loss on Disposal of Machinery	$   19,440.00
Machinery (Old)		$ 172,800.00
Bateman
Machinery (New)	$82,080
Accumulated Depreciation–Machinery	76,680
Machinery (Old)		$158,760
Transaction 3:
Flint Corporation
Machinery (New)	$ 108,000.00
Accumulated Depreciation–Machinery	$   54,000.00
Loss on Disposal of Machinery	$   19,440.00
Machinery (Old)		$ 172,800.00
Cash		$     8,640.00
Shripad Corporation
Machinery (New)	$   83,160.00
Accumulated Depreciation–Machinery	$   81,000.00
Cash	$     8,640.00
Machinery (Old)		$ 172,800.00
Transaction 4:
Flint Corporation
Machinery (New)	$ 199,800.00
Accumulated Depreciation–Machinery	$   54,000.00
Loss on Disposal of Machinery	$   19,440.00
Machinery (Old)		$ 172,800.00
Cash		$ 100,440.00
Ansong Corporation
Account Titles	Debit	Credit
Cash	$ 100,440.00
Inventory (Used)	$   99,360.00
Sales Revenue		$ 199,800.00
(To record sale with trade-in)
Cost of Goods Sold	$140,400
Inventory		$ 140,400.00
(To record Cost of Goods Sold)