Southern Company owns a building that it leases to others. The building’s fair v

Question

Southern Company owns a building that it leases to others. The building’s fair value is $1,900,000 and its book value is $1,200,000 (original cost of $2,500,000 less accumulated depreciation of $1,300,000). Southern exchanges this for a building owned by the Eastern Company. The building’s book value on Eastern’s books is $1,350,000 (original cost of $2,100,000 less accumulated depreciation of $750,000). Eastern also gives Southern $190,000 to complete the exchange. The exchange has commercial substance for both companies.

Prepare the journal entries to record the exchange on the books of both Southern and Eastern.

Southern Company owns a building that it leases to others. The building’s fair value is $1,900,000 and its book value is $1,200,000 (original cost of $2,500,000 less accumulated depreciation of $1,300,000). Southern exchanges this for a building owned by the Eastern Company. The building’s book value on Eastern’s books is $1,350,000 (original cost of $2,100,000 less accumulated depreciation of $750,000). Eastern also gives Southern $190,000 to complete the exchange. The exchange has commercial substance for both companies.

Explanation / Answer

Ans)

Southern company

Cash 190,000

Building—new (1,900,000 - 190,000) 1,710,000

Accumulated depreciation—building 1,300,000

Building—old 2,500,000

Gain on exchange of buildings 700,000

(1,900,000 - 1,200,000)

Eastern company

Building—new (1710,000 + 190,000) 1,900,000

Accumulated depreciation—building 750,000

Cash 190,000

Building—old 2,100,000

Gain on exchange of buildings 360,000

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