In: Accounting
Exercise 10-19 Bonita Company exchanged equipment used in its manufacturing operations plus $3,720 in cash for similar equipment used in the operations of Windsor Company. The following information pertains to the exchange. Bonita Co. Windsor Co. Equipment (cost) $34,720 $34,720 Accumulated depreciation 23,560 12,400 Fair value of equipment 15,500 19,220 Cash given up 3,720 Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance. (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 Bonita Company: Windsor Company: SHOW LIST OF ACCOUNTS Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange has commercial substance. (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 Bonita Company Windsor Company
Solution:
As transaction is having lack of commercial substance therefore no gain/loss will be recorded on exchange of old Equipment
Therefore Bonita record the new equipment for financial accounting purpose at = Cash paid + Book value of old Equipment
= $3,720 + ($34,720 - $23,560) = $14,880
Windsor company will record the new equipment for financial report purpose at = Book value of old equipment - Cash received
= ($34,720 - $12,400) - $3,720 = $18,600
Journal Entries - Bonita Company | ||
Particulars | Debit | Credit |
Equipment Dr | $14,880.00 | |
Accumualated depreciation Dr | $23,560.00 | |
To Cash | $3,720.00 | |
To Equipment | $34,720.00 | |
(To record exchange of equipment) |
Journal Entries - Windsor Company | ||
Particulars | Debit | Credit |
Equipment Dr | $18,600.00 | |
Accumualated depreciation Dr | $12,400.00 | |
Cash Dr | $3,720.00 | |
To Equipment | $34,720.00 | |
(To record exchange of equipment) |