Question
In: Accounting
Margot Co. exchanged equipment with Wiese Co. The following information pertains to the two pieces of...
Margot Co. exchanged equipment with Wiese Co.
The following information pertains to the two pieces of equipment:
Margot Co.
Original Cost $ 250,000
Accumulated Depreciation 100,000
Market Value 200,000
Wiese Co.
Original Cost $ 300,000
Accumulated Depreciation 140,000
Market Value 190,000
Wiese pays $10,000 to Margot.
Assume that the assets exchanged are similar and the transaction lacks commercial substance.
Assume that the transaction has commercial substance. Indicate the amounts recognized by Margot and Wiese at the time of exchange of assets:
Solutions
Expert Solution
| When the exchange lacks commercial substance: | ||||||
| Journal entries to be passed: | ||||||
| Margot Co. | ||||||
| Debit | Credit | |||||
| Equipment | 190000 | |||||
| Accumulated depreciation | 100000 | |||||
| Cash | 10000 | |||||
| Gain on sale of equipment | 50000 | |||||
| Equipment | 250000 | |||||
| Wiese Co. | ||||||
| Debit | Credit | |||||
| Equipment (Balancing figure) | 170000 | |||||
| Accumulated depreciation | 140000 | |||||
| Cash | 10000 | |||||
| Equipment | 300000 | |||||
| When the exchange has commercial substance: | ||||||
| Journal entries to be passed: | ||||||
| Margot Co. | ||||||
| Debit | Credit | |||||
| Equipment | 190000 | |||||
| Accumulated depreciation | 100000 | |||||
| Cash | 10000 | |||||
| Gain on sale of equipment | 50000 | |||||
| Equipment | 250000 | |||||
| Wiese Co. | ||||||
| Debit | Credit | |||||
| Equipment (Balancing figure) | 200000 | |||||
| Accumulated depreciation | 140000 | |||||
| Gain on sale of equipment | 30000 | |||||
| Cash | 10000 | |||||
| Equipment | 300000 | |||||
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