Question

During the current year, Kingbird Construction trades an old crane that has a book value of $127,800 (original cost $198,800 less accumulated depreciation $71,000) for a new crane from Oriole Manufacturing Co. The new crane cost Oriole $234,300 to manufacture and is classified as inventory. The following information is also available.

Kingbird Const.
Oriole Mfg. Co.
Fair value of old crane $116,440
Fair value of new crane $284,000
Cash paid 167,560
Cash received 167,560

Assuming that this exchange is considered to have commercial substance, prepare the journal entries on the books of (1) Kingbird Construction and (2) Oriole Manufacturing. (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.
Kingbird Construction
2.
Oriole Manufacturing
(To record exchange of inventory)
(To record cost of inventory)

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Assuming that this exchange lacks commercial substance for Kingbird, prepare the journal entries on the books of (1) Kingbird Construction and (2) Oriole Manufacturing. (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.
Kingbird Construction
2.
Oriole Manufacturing
(To record exchange of inventory)
(To record cost of inventory)

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Assuming the same facts as those in (a), except that the fair value of the old crane is $139,160 and the cash paid is $144,840, prepare the journal entries on the books of (1) Kingbird Construction and (2) Oriole Manufacturing. (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.
Kingbird Construction
2.
Oriole Manufacturing
(To record exchange of inventory)
(To record cost of inventory)

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Assuming the same facts as those in (b), except that the fair value of the old crane is $137,740 and the cash paid $146,260, prepare the journal entries on the books of (1) Kingbird Construction and (2) Oriole Manufacturing. (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.
Kingbird Construction
2.
Oriole Manufacturing
(To record exchange of inventory)
(To record cost of inventory)

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Answer 1

Part-1
Journal
No.	Account Name	Debit	Credit
kingbird Construction
1	Equipment (116440+167560)	284000
	Accumulated depreciation - equipment	71000
	Loss on disposal of equipment	11360*
	Equipment		198800
	Cash		167560
oriole Mfg. Co.
2	Cash	167560
	Inventory	116440
	Sales revenue		284000
	Cost of goods sold	234300
	Inventory		234300

*Computation of loss:
Book value of old crane	90000
Fair value of old crane	-116440
Loss on disposal of equipment	-26440

Part 2:

1. Marshall Construction should record the same entry as inpart (a) above, since the exchange resulted in a loss.

2. Brigham should record the same entry as in part (a) above. No gain is deferred because we are assuming that Marshall is a customer. In addition, because the cash involved is greater than 25% of the value of the exchange, the entire transaction is considered a monetary transaction and a gain is recognized.

Part 3:
Journal
No.	Account Name	Debit	Credit
kingbird Construction
1	Equipment (139160+144840)	284000
	Accumulated depreciation - equipment	71000
	Gain on disposal of equipment		11360
	Equipment		198800
	Cash		144840
oriole Mfg. Co.
2	Cash	144840
	Inventory	139160
	Sales revenue		284000
	Cost of goods sold	234300
	Inventory		234300

Part 4:
Journal
No.	Account Name	Debit	Credit
kingbird Construction
1	Equipment (137740+146260)	284000
	Accumulated depreciation - equipment	71000
	Gain on disposal of equipment		9940
	Equipment		198800
	Cash		146260
oriole Mfg. Co.
2	Cash	146260
	Inventory	137740
	Sales revenue		284000
	Cost of goods sold	234300
	Inventory		234300