Kennedy Company exchanged a warehouse with an appraised value of $1,260,000, a r

Question

Kennedy Company exchanged a warehouse with an appraised value of $1,260,000, a recorded cost of $1,800,000, and Accumulated Depreciation of $900,000 with Stark Corporation for an office building Stark owns. The office building has an appraised value of $1,224,000, a recorded cost of $2,160,000, and Accumulated Depreciation of $1,080,000. Stark also gave Kennedy $36,000 in the exchange.

REQUIRED:

1) Prepare the entries on both companies' books assuming that the transaction is considered to have commercial substance.

2) Prepare the entries on both companies' books assuming that the transaction is considered not to have commercial substance.

Comment

Explanation / Answer

1) Journal Entries in case of Commercial Substances In the Books of Kennedy On the Sale of Existing Office Debit Credit Stack Corporation A/c 1260000 Accumulated Dep A/c 900000 To Building 1800000 To Gain on Sale of Building 360000 On purchase of New office Building A/c 1224000 Bank A/c 36000 To Stack Corporation 1260000 In the Books of Stack Corporation On the Sale of Existing Office Debit Credit Kennedy 1224000 Accumulated Dep A/c 1080000 To Building 2160000 To Gain on Sale of Building 144000 On purchase of New office Building A/c 1260000 To Bank A/c 36000 To Kennedy 1224000 2) Journal Entries in case of not having Commercial Substances In the Books of Kennedy Bank A/c 36000 To Building 36000 In the Books of Stack Corporation Building A/c 36000 To Bank A/c 36000

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