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.

                                                                    Cheyenne 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

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

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

Explanation / Answer

1.

2.

In the books of Cheyenne Co. Account title Debit Credit Equipment (New) 14160 Acc.Dep 22420 Cash 3540 Equipment (Old) 33040 In the books of Ayayai Co. Account title Debit Credit Cash 3540 Acc.Dep 11800 Equipment (new) 17700 Equipment (Equipment old) 33040

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