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Chapter 19: Q-9-28E (page 1075)

Question: Exchanging assets鈥攖wo situations Partner Bank recently traded in office fixtures. Here are the facts

Old fixtures:

New Fixtures

Cost, \(91,000

Cash paid, \)110,000

Accumulated depreciation, \(68,000

Market value, \)133,000

Requirements

1. Record Partner Bank鈥檚 trade-in of old fixtures for new ones. Assume the exchange had commercial substance.

2. Now let鈥檚 change one fact. Partner Bank feels compelled to do business with Elm Furniture, a bank customer, even though the bank can get the fixtures elsewhere at a better price. Partner Bank is aware that the new fixtures鈥� market value is only $126,000. Record the trade-in. Assume the exchange had commercial substance

Short Answer

Expert verified

Answer

The business entity will generate a loss of $7,000 in the case where the market value of the new fixture is $126,000.

Step by step solution

01

Definition of Market Value

The value at which an asset is offered to the buyer in the marketplace is known as market value. Such value is decided by the market factors in which the product is offered for sale.

02

Recording exchange of asset

Date

Accounts and Explanation

Debit $

Credit $

New fixture

$133,000

Accumulated depreciation - old fixture

$68,000

Cash

$110,000

Old fixture

$91,000

(To record the exchange of asset)

Working note:

Particulars

Amount $

Amount $

Market Value of Asset Received

$133,000

Less: Book Value of Asset exchanged

$23,000

Less: Cash Paid

110,000

(133,000)

Gain

$0

03

Recording exchange of asset

Date

Accounts and Explanation

Debit $

Credit $

New fixture

126,000

Accumulated depreciation - old fixture

68,000

Loss on exchange

7,000

Cash

110,000

Old fixture

91,000

(To record the exchange of asset)

Working note:

Particulars

Amount $

Amount $

Market Value of Asset Received

$126,000

Less: Book Value of Asset exchanged

$23,000

Less: Cash Paid

110,000

(133,000)

Loss

($7,000)

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Question:Low Range produces fleece jackets. The company uses JIT costing for its JIT production system.

Low Range has two inventory accounts: Raw and In-Process Inventory and

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