Asset A Asset B Account Titles and Explanation Debit Credit Teal, Inc.’s Books F

Question

Asset A

Asset B

Account Titles and Explanation

Debit

Credit

Teal, Inc.’s Books

Flint, Inc.’s Books

LINK TO TEXT

Account Titles and Explanation

Debit

Credit

Teal, Inc.’s Books

Flint, Inc.’s Books

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

Asset A

Asset B

Original cost $111,360 $127,600 Accumulated depreciation (to date of exchange) 46,400 54,520 Fair value at date of exchange 69,600 87,000 Cash paid by Teal, Inc. 17,400 Cash received by Flint, Inc. 17,400

Explanation / Answer

Exchange has commercial substance:

New asset is recorded at fair value of old asset + cash paid - cash received

Exchange lacks commercial substance:

New asset is recorded at book value of old asset + cash paid - cash received

No gain or loss on exchange since recorded at book value

Account Titles and Explanation Debit Credit Teal, Inc.'s Books Machinery (B) 87000 Accumulated depreciation-machinery (A) 46400 Machinery (A) 111360 Cash 17400 Gain on disposal of machinery 4640 Flint, Inc.'s Books Cash 17400 Machinery (A) 69600 Accumulated depreciation-machinery (B) 54520 Machinery (B) 127600 Gain on disposal of machinery 13920

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