Question

On August 1, Flounder, Inc. exchanged productive assets with Culver, Inc. Flounder’s asset is referred to below as “Asset A,” and Culver’ is referred to as “Asset B.” The following facts pertain to these assets.

Asset A
Asset B
Original cost       $132,480       $151,800
Accumulated depreciation (to date of exchange)       55,200       64,860
Fair value at date of exchange       82,800       103,500
Cash paid by Flounder, Inc.       20,700      
Cash received by Culver, Inc.               20,700

  
Assuming that the exchange of Assets A and B has commercial substance, record the exchange for both Flounder, Inc. and Culver, Inc. in accordance with generally accepted accounting principles. (Round answers to 0 decimal places, e.g. 5,275. 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
Flounder, Inc.’s Books

Culver, Inc.’s Books

LINK TO TEXT

  
Assuming that the exchange of Assets A and B lacks commercial substance, record the exchange for both Flounder, Inc. and Culver, Inc. in accordance with generally accepted accounting principles. (Round intermediate calculations to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places e.g. 58,971. 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
Flounder, Inc.’s Books

Culver, Inc.’s Books

Answer 1

	Flounder’s asset	Culver’s asset
	Asset A	Asset B
Original cost	132,480	151,800
Less: Accumulated depreciation (to date of exchange)	(55,200)	(64,860)
Book value of assets	77,280	86,940
Fair value of assets	82,800	103,500
Less: Book value of assets	(77,280)	(86,940)
Gain on exchange	5,520	16,560
For part 2 (lack of substance)
Book value of assets	77,280	86,940
Add: cash transaction paid (received)	20,700	(20,700)
Value of new assets	97,980	66,240

Exchange of Assets A and B has commercial substance
Flounder, Inc.’s Books
Account Titles and Explanation	Debit	Credit
New equipment (asset)	103,500
Accumulated depreciation	55,200
Gain		5,520
Cash		20,700
Old equipment (asset)		132,480
(To record exchange of assets with Culver)
Culver, Inc.’s Books
Account Titles and Explanation	Debit	Credit
New equipment (asset)	82,800
Accumulated depreciation	64,860
Cash	20,700
Gain		16,560
Old equipment (asset)		151,800
(To record exchange of assets with flounder.)
Exchange of Assets A and B lacks commercial substance (under this gain should not be recorded.)
Flounder, Inc.’s Books
Account Titles and Explanation	Debit	Credit
New equipment (asset)	97,980
Accumulated depreciation	55,200
Cash		20,700
Old equipment (asset)		132,480
(To record exchange of assets with Culver)
Culver, Inc.’s Books
Account Titles and Explanation	Debit	Credit
New equipment (asset)	66,240
Accumulated depreciation	64,860
Cash	20,700
Old equipment (asset)		151,800
(To record exchange of assets with flounder.)
Under this method, Gain should not be recorded new equipment recorded at consideration value