Ice Mountain Company exchanged machinery with an appraised value of $1,755,000,
ID: 2388492 • Letter: I
Question
Ice Mountain Company exchanged machinery with an appraised value of $1,755,000, a recorded cost of $2,700,000 and Accumulated Depreciation of $1,350,000 with Green Corporation for machinery Green owns. The machinery has an appraised value of $1,695,000, a recorded cost of $3,240,000, and Accumulated Depreciation of $1,782,000. Green also gave Ice Mountain $60,000 in the exchange. Assume depreciation has already been updated.1.Prepare the journal entry for Green Company assuming that the exchange had commercial substance.
2. Assume that the exchange lacked commercial substance. Prepare the journal entry for Green Company.
3. Assume that the exchange lacked commercial substance. Prepare the journal entry for Ice Mountain Company.
Explanation / Answer
Commercial Substance
Machinery....................................... 1,695,000 Cost $2,700,000
Cash................................................ 60,000 A/D 1,350,000
Accum. Depreciation— BV 1,350,000
Machinery................................... 1,350,000 FV 1,755,000
Gain on Exchange of Gain $ 405,000
Plant Assets.................. 405,000
Machinery........................ 2,700,000
Machinery....................................... 1,755,000 Cost $3,240,000
Accum. Depreciation— A/D 1,782,000
Machinery................................... 1,782,000 BV 1,458,000
Gain on Exchange of FV 1,695,000
Plant Assets.................. 237,000 Gain $ 237,000
Machinery........................ 3,240,000
Cash................................. 60,000
================================================
(b) No Commercial Substance
Machinery................................................................... 1,303,846
Cash............................................................................ 60,000
Accumulated Deprecation—Machinery...................................... 1,350,000
Gain on Exchange.................................................... 13,846
Machinery................................................................... 2,700,000
$60,000 ÷ ($60,000 + $1,695,000) × $405,000 = $13,846
Machinery......................................................................... 1,518,000
Accumulated Depreciation—Machinery....................................... 1,782,000
Machinery....................................................................... 3,240,000
Cash........................................................................ 60,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.