Question

Windy and Krook Company enter into an agreement for the trade of certain nonmonetary assets. The machines exchanged by Windy Company have a book value of $245000 (cost $325000 less accumulated depreciation of $80000) and a fair value of $275000. The trucks given up by Krook Company have a book value of $260000 (cost $350000 less accumulated depreciation $90000) and a fair value of $290000. In addition to the exchange of the assets, Windy agrees to pay Krook Company $15000 as part of the transaction. Assume that the exchange lacks commercial substance.

Instructions: Record the exchange transactions for Windy Company and Krook Company.

For Windy:

Date Account Titles Debit Credit

Step 1: Assets given up: ? Assets Received: ? Step 2: Gain/loss of: ?

BV of: ?

FV of: ?

For Krook:

Date: Account Titles: Debit: Credit:

Step 1: Assets given up: ? Assets Received: ? Step 2: Gain/loss of: ?

BV of: ?

FV of: ?

Answer 1

Answer :

(1). Record the following journal entries in the book of Windy

Date	Account Title and Explanation	Debit	Credit
	Truck ($245,000 + $15,000)	$260,000	-
	Machinery		$245,000
	Cash		$15,000
	(To cash exchange of machinery for truck)	-	-

Step 1	Assets given up		Assets Received
	Machinery	$245,000		Trucks	$260,000
	Cash	$15,000			-
	Total	$260,000		Total	$260,000
Step 2		Determine gain or loss		-	-
	Total assets received	$260,000			-
	Total assets given up	$260,000			-
	Gain or loss	$0			-

(2). Prepare the following journal entries in the books of Krock

Date	Accounts Title and Explanation	Debit	Credit
	Cash	$15,000	-
	Machinery	$245,000	-
	Trucks		$260,000
	(To record exchange of truck for machinery)		-

Step 1	Assets given up		Assets Received
	Trucks	$260,000		Machinery	$245,000
				Cash	$15,000
	Total	$260,000		Total	$260,000
Step 2		Determine gain or loss		-	-
	Total assets received	$260,000			-
	Total assets given up	$260,000			-
	Gain or loss	$0			-

Note : The acquired assets are valued at the book value assets given in the case of exchages that lack commercial substance.