Question

Problem 10-8

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

1.		Bramble Company offered to exchange a similar machine plus $25,300. (The exchange has commercial substance for both parties.)
2.		Sunland Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)
3.		Coronado Company offered to exchange a similar machine, but wanted $3,300 in addition to Vaughn’s machine. (The exchange has commercial substance for both parties.)

In addition, Vaughn contacted Whispering Corporation, a dealer in machines. To obtain a new machine, Vaughn must pay $102,300 in addition to trading in its old machine.

	Vaughn	Bramble	Sunland	Coronado	Whispering
Machine Cost	$176,000	$132,000	$167,200	$176,000	$143,000
Accumulated depreciation	66,000	49,500	78,100	82,500	-0-
Fair value	101,200	75,900	101,200	104,500	203,500

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	Credt
1	Vaughn Corporation
	Bramble Company
2.	Vaughn Corporation
	Sunland Company
3.	Vaughn Company
	Coronado Company
4.	Vaughn Corporation
	Whispering Company
	(to record exchange of inventory)
	(to record cost of inventory)

List of Accounts

Accounts Payable
Accumulated Depreciation-Building
Accumulated Depreciation-Equipment
Accumulated Depreciation-Machinery
Accumulated Depreciation-Trucks
Buildings
Cash
Common Stock
Contribution Revenue
Cost of Goods Sold
Depreciation Expense
Direct Labor
Discount on Notes Payable
Equipment
Factory Overhead
Gain on Disposal of Buildings
Gain on Disposal of Equipment
Gain on Disposal of Machinery
Gain on Disposal of Trucks
Insurance Expense
Interest Expense
Inventory
Land
Land Improvements
Loss on Disposal of Buildings
Loss on Disposal of Equipment
Loss on Disposal of Machinery
Loss on Disposal of Trucks
Machinery
Maintenance and Repairs Expense
Materials
No Entry
Notes Payable
Organization Expense
Paid-in Capital in Excess of Par - Common Stock
Prepaid Insurance
Retained Earnings
Salaries and Wages Expense
Sales Revenue
Trading Securities
Trucks

Answer 1

Situation 1:

	Vaughn	Bramble
Book value of machinery	$110,000	$82,500
Fair value	$101,200	$75,900
Gain/(loss) on disposal of machinery	($8,800)	($6,600)

Book value = machine cost - accumulated depreciation

Journal entry in books of Vaughn:

Account title	Debit	Credit
Cash	25,300
Machinery	75,900
Accumulated depreciation	66,000
Loss on disposal of machinery	8,800
Machinery		176,000

Journal entry in books of Bramble:

Account title	Debit	Credit
Machinery	101,200
Accumulated depreciation	49,500
Loss on disposal of machinery	6,600
Cash		25,300
Machinery		132,000

Situation 2:

  Journal entry in books of Vaughn:

Account title	Debit	Credit
Machinery	101,200
Accumulated depreciation	66,000
Loss on disposal of machinery	8,800
Machinery		176,000

Journal entry in the books of Sunland:

Account title	Debit	Credit
Machinery	89,100
Accumulated depreciation	78,100
Machinery		167,200

Situation 3:

Journal entry in books of Vaughn:

Account title	Debit	Credit
Machinery	104,500
Accumulated depreciation	66,000
Loss on disposal of machinery	8,800
Cash		3,300
Machinery		176,000

Journal entry in the books of Cornado:

Account title	Debit	Credit
Machinery	101,200
Accumulated depreciation	82,500
Cash	3,300
Gain on disposal of machinery		11,000
Machinery		176,000

Situation 4:

  Journal entry in books of Vaughn:

Account title	Debit	Credit
Machinery	203,500
Accumulated depreciation	66,000
Loss on disposal of machinery	8,800
Cash		102,300
Machinery		176,000

Journal entry in books of Whispering Company:

Account title	Debit	Credit
Cash	102,300
Used machine inventory	101,200
Sales		203,500
(to record exchange of inventory)
Cost of goods sold	143,000
Machinery inventory		143,000
(to record cost of inventory)