Beeman Company exchanged machinery with an appraised value of $3,510,000, a reco
ID: 2501140 • Letter: B
Question
Beeman Company exchanged machinery with an appraised value of $3,510,000, a recorded cost of $5,400,000 and accumulated depreciation of $2,700,000 with Lacey Corporation for machinery Lacey owns. The machinery has an appraised value of $3,390,000, a recorded cost of $6,480,000, and accumulated depreciation of $3,564,000. Lacey also gave Beeman $120,000 in the exchange. Assume depreciation has already been updated. Instructions (a) Prepare the entries on both companies' books assuming that the exchange had commercial substance. (Round all computations to the nearest dollar.) (b) Prepare the entries on both companies' books assuming that the exchange lacked commercial substance. (Round all computations to the nearest dollar.)
Explanation / Answer
Answer:
a.) Commercial Substance :
Beeman Machinery........................................................................Dr. 3,390,000
Cash............................................................................................Dr. 120,000
Accumulated Depreciation of Machinaery...............................................2,700,000
Gain on Disposal of Machinary..............................................................810,000
Machinery...........................................................................................5,400,000
Working:
Cost............................. 5,400,000
Accumulated Dep............ 2,700,000
Book Value......................................2,700,000
Face Value......................................3,510,000
Gain...............................................$ 810,000
Lacey machinery.......................................................Dr. 3,510,000
Accum Dep of Machinery...........................................Dr. 3,564,000
Gain on Disposal of Machinery.....................................474,000
Machinery.................................................................6,480,000
Cash.........................................................................120,000
b.) No Commercial Substance
Beeman Machinery.........................................................................Dr. 2,607,692
Cash.............................................................................................Dr. 120,000
Accumulated Depreciation - Machinery.............................................Dr.2,700,000
Gain on Disposal of Machinery...................................................27,692
Machinery................................................................................5,400,000
$ 120,000 / ( $ 120,000 + $ 3,390,000 ) * $ 810,000 = $ 27,692
Lacey Machinery...................................................................................Dr. $ 3,036,000
Accumulated Depreciation - Machinery...................................................Dr. $ 3564,000
Machinery...............................................................................6,480,000
Cash......................................................................................120,000
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