Cheyenne Company exchanged equipment used in its manufacturing operations plus $

Question

Cheyenne Company exchanged equipment used in its manufacturing operations plus $3,540 in cash for similar equipment used in the operations of Ayayai Company. The following information pertains to the exchange.

                                                Cheyeene Co.             Ayayai Co.

Equipment Cost 33,040                                   33,040

Accumulated Depreciation          22,420                                   11,800

Fair Value of Equipment    14,750                                   18,290

Cash given up    3,540

Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance.

Explanation / Answer

Company Cheyeene co.

Total consideration given:

cash given as percentage of total= 3540/18290= 19.36% as cash given is less than 25% no gain is recognised and the basis of new asset received will be total of cash given plus book value of asset given.

entry:

books of Ayayai co.

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