Question

Whispering Company exchanged equipment used in its manufacturing operations plus $4,260 in cash for similar equipment used in the operations of Metlock Company. The following information pertains to the exchange.

		Whispering Co.			Metlock Co.
Equipment (cost)		$39,760			$39,760
Accumulated depreciation		26,980			14,200
Fair value of equipment		17,750			22,010
Cash given up		4,260

Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance. (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
Whispering Company:
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
Metlock Company:
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

eTextbook and Media

List of Accounts

Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange has commercial substance. (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
Whispering Company
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
Metlock Company
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

eTextbook and Media

Answer 1

ANSWER

Calculation of Gain or Loss
	Whispering Co.	Metlock Co.
Fair Value of Old Equipment	17750	22010
Less: Book Value of Equipment	-12780	-25560
Gain (or Loss) on Exchange	4970	-3550

(a) Lacks Commercial Substance
Company	Account Title and Explanation	Debit	Credit
Whispering Co.	Equipment ($12780+ 4260)	17,040.00
	Accumulated Depreciation	26,980.00
	Equipment		39,760.00
	Cash		4,260.00
	(Being equipment exchanged)
Metlock Co.	Equipment (New)	17,750.00
	Accumulated Depreciation	14,200.00
	Cash	4,260.00
	Loss on exchange	3,550.00
	Equipment(Old)		39,760.00
	(Being equipment exchanged)

(b) Has Commercial Substance
Company	Account Title and Explanation	Debit	Credit
Whispering Co	Equipment (New) ($17750 + $4260)	22010
	Accumulated Depreciation	26980
	Equipment (Old)		39760
	Cash		4260
	Gain on exchange		4970
	(Being equipment exchanged)
Metlock Co	Equipment (New)	17750
	Accumulated Depreciation	14200
	Cash	4260
	Loss on exchange	3550
	Equipment(Old)		39760
	(Being equipment exch

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