Question

Paltrow Corporation follows a policy of a 10% depreciation charge per year on all machinery
and a 5% depreciation charge per year on buildings. The following transactions occurred in
2019:

5 April 2019 -- Paltrow issued 1,000 shares of its no par common stock in exchange for
the equipment. The market value of the common stock was not
determinable. The equipment could have been purchased for $24,000 in
cash.

31 March 2019 -- Negotiations which began in 2018 were completed and a warehouse
purchased 1/1/2018 (depreciation has been properly charged through
December 31, 2018) at a cost of $3,200,000 with a fair market value of
$2,000,000 was exchanged for a second warehouse which also had a fair
market value of $2,000,000. The exchange had no commercial substance.
Both parcels of land on which the warehouses were located were equal in
value, and had a fair value equal to book value.

30 June 2019 -- Machinery with a cost of $240,000 and accumulated depreciation through
January 1 of $180,000 was exchanged with $150,000 cash for a parcel of
land with a fair market value of $230,000.

1 August 2019 -- Paltrow Company purchased two buildings on four acres of land. The
lump-sum purchase price was $900,000. According to independent
appraisals, the fair values were $450,000 (building A) and $250,000
(building B) for the buildings and $300,000 for the land.

Required
Prepare all appropriate journal entries for Paltrow Corporation for the above dates.

Answer 1

Note 1: As per standards, when there is no commercial substance then exchanged asset is recorded at Book Value of the old asset.

Note 2: Journal entry as on 1st August 2019, amount of cash paid is proportionately allocated to other assets at their fair values.

Note 3: Depreciation is charged on the basis of Straight Line Method