Question

On August 1, Hyde, Inc. exchanged productive assets with Wiggins, Inc. Hyde's asset is referred to below as “Asset A,” and Wiggins' is referred to as “Asset B.” The following facts pertain to these assets.

	Asset A	Asset B
Original cost	$96,000	$110,000
Accumulated depreciation (to date of exchange)	40,000	47,000
Fair value at date of exchange	60,000	75,000
Cash paid by Hyde, Inc.	15,000
Cash received by Wiggins, Inc.		15,000

Instructions

(a)  

Assuming that the exchange of Assets A and B has commercial substance, record the exchange for both Hyde, Inc. and Wiggins, Inc. in accordance with generally accepted accounting principles.

(b)  

Assuming that the exchange of Assets A and B lacks commercial substance, record the exchange for both Hyde, Inc. and Wiggins, Inc. in accordance with generally accepted accounting principles.

Answer 1

a)Commercial substance
Hyde Inc.
Date	Account Title	Debit($)	Credit($)
1	Equipment (FV)	75,000
	Accumulated depreciation	40,000
	Old Equipment -Book Value		96,000
	Cash		15,000
	Gain on sale of equipment (60,000-56,000)		4,000
	( To record equipment exchanged)
Wiggins, Inc.
2	Equipment (FV)	60,000
	Cash	15,000
	Accumulated depreciation	47,000
	Gain on exchange of equipment		12,000
	Old Equipment -Book Value		1,10,000
	( To record equipment exchanged)

b)No Commercial substance
Hyde Inc.
Date	Account Title	Debit($)	Credit($)
3	Equipment	71,000
	Accumulated depreciation	40,000
	Old Equipment -Book Value		96,000
	Cash		15,000
	( To record equipment exchanged)
Wiggins Inc.
4	Equipment	48,000
	Cash	15,000
	Accumulated depreciation	47,000
	Old Equipment -Book Value		1,10,000
	( To record equipment exchanged)

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