Question

Stellar Corporation wishes to exchange a machine used in its operations. Stellar has received the following offers from other companies in the industry.

1.		Pearl Company offered to exchange a similar machine plus $33,580. (The exchange has commercial substance for both parties.)
2.		Martinez Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)
3.		Sandhill Company offered to exchange a similar machine, but wanted $4,380 in addition to Stellar’s machine. (The exchange has commercial substance for both parties.)

In addition, Stellar contacted Teal Corporation, a dealer in machines. To obtain a new machine, Stellar must pay $135,780 in addition to trading in its old machine.

		Stellar		Pearl		Martinez		Sandhill		Teal
Machine cost		$233,600		$175,200		$221,920		$233,600		$189,800
Accumulated depreciation		87,600		65,700		103,660		109,500		–0–
Fair value		134,320		100,740		134,320		138,700		270,100

For each of the four independent situations, prepare the journal entries to record the exchange on the books of each company. (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.)

No.	Account Titles and Explanation	Debit	Credit
1.	Stellar Corporation
	Pearl Company
2.	Stellar Corporation
	Martinez Company
3.	Stellar Corporation
	Sandhill Company
4.	Stellar Corporation
	Teal Company
	(To record exchange of inventory)
	(To record cost of inventory)

Answer 1

Solution-

1)

No.	Account Titles and Explanation	Debit ($)	Credit ($)
1.	Stellar Corporation
	Cash	33580
	Machinery	100740
	Accumulated depreciation	87600
	Loss on disposal of machinery [233600 - 87600 - 134320]	11680
	Machinery		233600
	Pearl Company
	Machinery	134320
	Accumulated depreciation	65700
	Loss on disposal of machinery [175200 - 65700 - 100740]	8760
	Cash		33580
	Machinery		175200

2)

No.	Account Titles and Explanation	Debit ($)	Credit ($)
2.	Stellar Corporation
	Machinery	134320
	Accumulated depreciation	87600
	Loss on disposal of machine [233600 - 87600 - 134320]	11680
	Machinery		233600
	Martinez Company
	Machinery [221920 - 103660]	118260
	Accumulated depreciation	103660
	Machinery		221920

3)

No.	Account Titles and Explanation	Debit ($)	Credit ($)
3.	Stellar Corporation
	Machinery	138700
	Accumulated depreciation	87600
	Loss on disposal of machine [233600 - 87600 - 134320]	11680
	Machinery		233600
	Cash		4380
	Sandhill Company
	Machinery	134320
	Accumulated depreciation	109500
	Cash	4380
	Machinery		233600
	Loss on disposal of machine [233600 - 109500 - 138700]		14600

4)

No.	Account Titles and Explanation	Debit ($)	Credit ($)
4.	Stellar Corporation
	Machinery	270100
	Accumulated depreciation	87600
	Loss on disposal of machinery [233600 - 87600 - 134320]	11680
	Machinery		135780
	cash		233600
	Teal Company
	Cash	135780
	Inventory	134320
	Sales revenue		270100
	(To, record exchange of inventory)
	Cost of goods sold	189800
	Inventory		189800
	(To, record cost of inventory)