Derek's Machine Works Ltd. owns a lathe with an original cost of $250,000 and a current...

Derek's Machine Works Ltd. owns a lathe with an original cost of $250,000 and
a current book value of $65,000. The company is considering exchanging or trading-in
their existing machine for more suitable machines owned by Bernie, Tino and
Mariano Machine Dealers Co.

Information pertaining to the prospective exchanges or trade-in is as follows:

	Bernie	Tino	Mariano
Cost basis	$ 325,000	160,000
Accum. Deprec.	$ 175,000	60,000
Fair Value	$ 125,000	72,250
List price			$ 275,000
Inventory cost			$ 225,000

*Assume these transactions lack "commercial substance"*
Instructions
Record the exchange on the books of Derek and Bernie assuming that
Derek will pay Bernie $40,000. (Fair value of Derek's machine = $85,000).
Record the exchange on the books of Derek and Tino assuming that
Tino pays Derek $12,750
Record the purchase/sale on the books of Derek and Mariano assuming that
Derek pays Mariano $190,000

Expert Solution

ekkarill92 answered 1 year ago

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