Exercise 10-19 Waterway Company exchanged equipment used in its manufacturing op
ID: 2531643 • Letter: E
Question
Exercise 10-19 Waterway Company exchanged equipment used in its manufacturing operations plus $3,540 in cash for similar equipment used in the operations of Wildhorse Company The following information pertains to the exchange. Wildhorse Co $33,040 11,800 18,290 Waterway Co. Equipment (cost) Accumulated depreciation Fair value of equipment Cash given up $33,040 22,420 14,750 3,540 Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance. (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.) Debit Credit Account Titles and Explanation Waterway Company: Equipment Accumulated Depreciation-Equipment 22420 33040Explanation / Answer
Exchange lacks commercial substance:
New asset is recorded at book value of old asset + cash paid. No gain or loss on exchange since recorded at book value.
Exchange with commercial substance:
New asset is recorded at fair value of old asset + cash paid. Difference between fair value and book value of old asset is the gain on exchange.
Account Titles and Explanation Debit Credit Waterway Company: Equipment (new) 14160 Accumulated depreciation 22420 Equipment (old) 33040 Cash 3540 (To record exchange of machine) Wildhorse Company: Cash 3540 Equipment (new) 17700 Accumulated depreciation 11800 Equipment (old) 33040 (To record exchange of machine)Related Questions
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