Tamarisk Corporation wishes to exchange a machine used in its operations. Tamari
ID: 2413131 • Letter: T
Question
Tamarisk Corporation wishes to exchange a machine used in its operations. Tamarisk has received the following offers from other companies in the industry.
In addition, Tamarisk contacted Coronado Corporation, a dealer in machines. To obtain a new machine, Tamarisk must pay $135,780 in addition to trading in its old machine.
Tamarisk
Vaughn
Bramble
Sunland
Coronado
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
Credit
1.
Tamarisk Corporation
Vaughn Company
2.
Tamarisk Corporation
Bramble Company
3.
Tamarisk Corporation
Sunland Company
4.
Tamarisk Corporation
Coronado Company
1. Vaughn Company offered to exchange a similar machine plus $33,580. (The exchange has commercial substance for both parties.) 2. Bramble Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.) 3. Sunland Company offered to exchange a similar machine, but wanted $4,380 in addition to Tamarisk’s machine. (The exchange has commercial substance for both parties.)Explanation / Answer
1.
Tamarisk Corporation
Cash.........................................................................
33,580
Machinery................................................................
100,740
Accumulated Depreciation—Machinery...........
87,600
Loss on Disposal of Machinery..........................
11,680*
Machinery.......................................................
233,600
*Computation of loss: Book value
$146,000
Less: Fair value
134,320
Loss
$ 11,680
Vaughn Company
Machinery................................................................
134,320
Accumulated Depreciation—Machinery...........
65,700
Loss on Disposal of Machinery..........................
8,760*
Cash.................................................................
33,580
Machinery.......................................................
175,200
*Computation of loss: Book value
$ 109,500
Less: Fair value
100,740
Loss
$ 8,760
2.
Tamarisk Corporation
Machinery................................................................
134,320
Accumulated Depreciation—Machinery...........
87,600
Loss on Disposal of Machinery..........................
11,680
Machinery.......................................................
233,600
Bramble Company
Machinery ($134,320 – $16,060).........................
118,260*
Accumulated Depreciation—Machinery...........
103,660
Machinery.......................................................
221,920
*Computation of gain
deferred: Fair value
$134,320
Less: Book value
118,260
Gain deferred
$16,060
3.
Tamarisk Corporation
Machinery..............................................................
138,700
Accumulated Depreciation—Machinery..........
87,600
Loss on Disposal of Machinery.........................
11,680
Machinery......................................................
233,600
Cash................................................................
4,380
Sunland Company
Machinery..............................................................
134,320
Accumulated Depreciation—Machinery..........
109,500
Cash........................................................................
4,380
Machinery......................................................
233,600
Gain on Disposal of Machinery.................
14,600*
*Fair value
$ 138,700
Less: Book value
124,100
Gain
$ 14,600
Because the exchange has commercial substance, the entire gain should be recognized.
4.
Tamarisk Corporation
Machinery..............................................................
270,100
Accumulated Depreciation—Machinery..........
87,600
Loss on Disposal of Machinery.........................
11,680
Machinery......................................................
233,600
Cash................................................................
135,780
Coronado Company
Cash........................................................................
135,780
Inventory................................................................
134,320
Sales Revenue..............................................
270,100
Cost of Goods Sold..............................................
189,800
Inventory........................................................
189,800
1.
Tamarisk Corporation
Cash.........................................................................
33,580
Machinery................................................................
100,740
Accumulated Depreciation—Machinery...........
87,600
Loss on Disposal of Machinery..........................
11,680*
Machinery.......................................................
233,600
*Computation of loss: Book value
$146,000
Less: Fair value
134,320
Loss
$ 11,680
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