Question

In: Accounting

Bob's Inc. exchanged Building 24 which has a value of $6,400,000, a cost of $10,120,000, and...

Bob's Inc. exchanged Building 24 which has a value of $6,400,000, a cost of $10,120,000, and accumulated depreciation of $4,800,000 for Building B belonging to Bro Company Building B has an appraised value of $6,016,000, a cost of $12,040,000, and accumulated depreciation of $6,336,000. Bro paid Bob's $384,000 to complete the exchange.

Prepare the entries on both companies' books assuming the exchange had no commercial substance. Also prepare the journal entries on both companies’ books assuming the exchange had commercial substance.

Solutions

Expert Solution

Exchange lacks commercial substance:

Account Titles and Explanation Debit Credit
Bob's Inc.
Cash 384000
Building B 4936000
Accumulated depreciation 4800000
Building 24 10120000
(To record exchange of building)
Bro Company:
Building 24 6088000
Accumulated depreciation 6336000
Building B 12040000
Cash 384000
(To record exchange of building)

Note: New asset is recorded at book value of old asset + cash paid - cash received. No gain or loss on exchange since recorded at book value.

Exchange has commercial substance:

Account Titles and Explanation Debit Credit
Bob's Inc.
Cash 384000
Building B (6400000-384000) 6016000
Accumulated depreciation 4800000
Gain on disposal of building 1080000
Building 24 10120000
(To record exchange of building)
Bro Company:
Building 24 (6016000+384000) 6400000
Accumulated depreciation 6336000
Gain on disposal of building 312000
Building B 12040000
Cash 384000
(To record exchange of building)

Note: New asset is recorded at fair value of old asset + cash paid - cash received. Difference between fair value and book value of old asset is the gain on exchange.

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Problem 145 Hodge Co. exchanged Building 24 which has an appraised value of $4,821,000, a cost...
Problem 145 Hodge Co. exchanged Building 24 which has an appraised value of $4,821,000, a cost of $7,584,000, and accumulated depreciation of $3,588,000 for Building M belonging to Fine Co. Building M has an appraised value of $4,531,000, a cost of $9,034,000, and accumulated depreciation of $4,714,000. The correct amount of cash was also paid. Assume depreciation has already been updated. Prepare the entries on both companies' books assuming the exchange had no commercial substance. (Credit account titles are automatically...
A building with a cost of $225,000 has an estimated residual value of $45,000, has an...
A building with a cost of $225,000 has an estimated residual value of $45,000, has an estimated useful life of 9 years, and is depreciated by the straight-line method. a. What is the amount of the annual depreciation? $ b. What is the book value at the end of the fifth year of use? $ c. If at the start of the sixth year it is estimated that the remaining life is 5 years and that the residual value is...
Jarvis Corporation owned a building with a book value of $109,000 at 12/31/24. The building had...
Jarvis Corporation owned a building with a book value of $109,000 at 12/31/24. The building had a 15-year remaining life and a revaluation surplus balance of $46,000 on that date. The company sold the building on 1/1/25 for $182,000. What is the effect of the sale on OCI per IFRS? Select one: a. $119,000 b. $182,000 c. $27,000 d. $46,000 e. $73,000
Jarvis Corporation owned a building with a book value of $109,000 at 12/31/24. The building had...
Jarvis Corporation owned a building with a book value of $109,000 at 12/31/24. The building had a 15-year remaining life and a Revaluation Surplus balance of $46,000 on that date. The company sold the building on 1/1/25 for $182,000. What is the combined effect of the sale and Revaluation Surplus adjustment on Total Assets per IFRS? Select one: a. $109,000 b. $182,000 c. $27,000 d. $46,000 e. $73,000
Zinger Inc. has a delivery truck which originally cost $23,000. It has a residual value of...
Zinger Inc. has a delivery truck which originally cost $23,000. It has a residual value of $5,000. The truck has a total life of 9 years, and was purchased 3 years ago. This year, the truck was used from January 1 until March 31. On April 1, the truck was sold. If Zinger uses the straight-line method, what is the depreciation expense on the truck for this year (the year of sale)? A) $500 B) $666 C) $1,500 D) $2,000
Part1) Bob's Apartment Building has 100 units that rent for $1,110 per month each. What is...
Part1) Bob's Apartment Building has 100 units that rent for $1,110 per month each. What is the Gross Potential Income for Bob's Apartment Building? Part2) Bob's Apartment Building has gross potential income of $1,000,000. The expected vacancy rate is 13%. Collection losses are 5% (after allowing for vacancies). Incidental income is $50,000 per year. What is the Effective Gross Income for Bob's Apartment Building? Part3) Bob's Apartment Building has effective gross income of $500,000. Operating expenses are 38% of revenue....
Sparta Company exchanged machinery with an appraised value of $4,680,000 a recorded cost of $7,200,000 and...
Sparta Company exchanged machinery with an appraised value of $4,680,000 a recorded cost of $7,200,000 and accumulated depreciation of $3,600,000 with Delphi Corporation for machinery Delphi owns. The machinery has an appraised value of $4,520,000  a recorded cost of $8,640,000 and accumulated depreciation of $4,752,000. Delphi also gave Sparta $160,000 in the exchange. A. Prepare the entries on both companies' books assuming that the exchange had commercial substance. (Round all computations to the nearest dollar.) B. Prepare the entries on both...
Exercise 24-07 (Video) Pharoah Inc., which produces a single product, has prepared the following standard cost...
Exercise 24-07 (Video) Pharoah Inc., which produces a single product, has prepared the following standard cost sheet for one unit of the product. Direct materials (6 pounds at $1.60 per pound) $9.60 Direct labor (6 hours at $10.00 per hour) $60.00 During the month of April, the company manufactures 310 units and incurs the following actual costs. Direct materials purchased and used (2,400 pounds) $4,080 Direct labor (1,880 hours) $18,612 Compute the total, price, and quantity variances for materials and...
Larkspur Inc., a publicly listed company, has a building with an initial cost of $436,000. At...
Larkspur Inc., a publicly listed company, has a building with an initial cost of $436,000. At December 31, 2020, the date of revaluation, accumulated depreciation amounted to $109,000. The fair value of the building, by comparing it with transactions involving similar assets, is assessed to be $359,700. Prepare the journal entries to revalue the plant under the revaluation model using the asset adjustment method. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If...
Moon Inc., a publicly listed company, has a building with an initial cost of $400,000. At...
Moon Inc., a publicly listed company, has a building with an initial cost of $400,000. At December 31, 2020, the date of revaluation, accumulated depreciation amounted to $110,000. The fair value of the building, by comparing it with transactions involving similar assets, is assessed to be $330,000. Prepare the journal entries to revalue the building under the revaluation model using: the asset adjustment (direct) method the proportionate method Use the information from 1 above. On January 5, 2021, Moon sold...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT