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Magazine Chapter 10: Q8P (page 545)
(Nonmonetary Exchanges) Holyfield Corporation wishes to exchange a machine used in its operations. Holyfield has received the following offers from other companies in the industry.
- Dorsett Company offered to exchange a similar machine plus \(23,000. (The exchange has commercial substance for both parties.)
- Winston Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)
- Liston Company offered to exchange a similar machine, but wanted \)3,000 in addition to Holyfield鈥檚 machine. (The exchange has commercial substance for both parties.)
In addition, Holyfield contacted Greeley Corporation, a dealer in machines. To obtain a new machine, Holyfield must pay \(93,000 in addition to trading in its old machine.
Holyfield | Dorsett | Winston | Liston | Greeley | |
Machine cost | \)160,000 | \(120,000 | \)152,000 | \(160,000 | \)130,000 |
Accumulated depreciation | 60,000 | 45,000 | 71,000 | 75,000 | 鈥�0鈥� |
Fair value | 92,000 | 69,000 | 92,000 | 95,000 | 185,000 |
Instructions
For each of the four independent situations, prepare the journal entries to record the exchange on the books of each company.
Short Answer
- Holyfield corporation- loss on disposal machinery =$8,000
- Dorsett- loss on disposal machinery =$6,000
- Winston-gain deferred = $11,000
- Liston- gain on disposal of machinery =$10,000
- Greely-sales revenue =$185,000
Step by step solution
Meaning of Non-Interest Bearing Liabilities
Journal entry refers to recording business transactions in the books of accounts in the manner in which the transactions occurred.
Step 2:Preparing journal entries
In the books of HolyfieldCorporation
Date | Particulars | Debit ($) | Credit ($) |
Cash | 23,000 | ||
Machinery | 69,000 | ||
Accumulated Depreciation-Machinery | 60,000 | ||
Loss on Disposal of Machinery | 8,000 | ||
Machinery | 160,000 | ||
Working notes:
Computation of loss on disposal of machinery
Computation of loss: Book value | $100,000 |
Less: Fair value | 92,000 |
Loss | $ 8,000 |
In the books of the Dorsett Company
Date | Particulars | Debit ($) | Credit ($) |
Machinery | 92,000 | ||
Accumulated Depreciation-Machinery | 45,000 | ||
Loss on Disposal of Machinery | 6,000 | ||
Cash | 23,000 | ||
Machinery | 120,000 | ||
Working notes:
Computation of loss on disposal of machinery
Computation of loss: Book value | $75,000 |
Less: Fair value | 69,000 |
Loss | $ 6,000 |
Preparing journal entries
In the books of HolyfieldCorporation
Date | Particulars | Debit ($) | Credit ($) |
Machinery | 92,000 | ||
Accumulated Depreciation-Machinery | 60,000 | ||
Loss on Disposal of Machinery | 8,000 | ||
Machinery | 160,000 | ||
In the books of the Winston Company
Date | Particulars | Debit ($) | Credit ($) |
Machinery | 81,000 | ||
Accumulated Depreciation-Machinery | 71,000 | ||
Machinery | 152,000 | ||
Working notes:
Computation of gain deferred:
Fair value | $92,000 |
Less: Book value | 81,000 |
Gain deferred | $11,000 |
Preparing journal entries
In the books of HolyfieldCorporation
Date | Particulars | Debit ($) | Credit ($) |
Machinery | 95,000 | ||
Accumulated Depreciation-Machinery | 60,000 | ||
Loss on Disposal of Machinery | 8,000 | ||
Machinery | 160,000 | ||
Cash | 3,000 | ||
In the books of the Liston Company
Date | Particulars | Debit ($) | Credit ($) |
Machinery | 92,000 | ||
Accumulated Depreciation-Machinery | 75,000 | ||
Cash | 3,000 | ||
Machinery | 160,000 | ||
Gain on Disposal of Machinery | 10,000 | ||
Working notes:
Computation of gain on disposal of machinery
Fair value | $ 95,000 |
Less: Book value | 85,000 |
Gain | $ 10,000 |
Note:The whole gain should be recorded since the trade has commercial value.
Preparing journal entries
In the books of HolyfieldCorporation
Date | Particulars | Debit ($) | Credit ($) |
Machinery | 185,000 | ||
Accumulated Depreciation-Machinery | 60,000 | ||
Loss on Disposal of Machinery | 8,000 | ||
Machinery | 160,000 | ||
Cash | 93,000 | ||
In the books of the Greeley Company
Date | Particulars | Debit ($) | Credit ($) |
Cash | 93,000 | ||
Inventory | 92,000 | ||
Sales Revenue | 185,000 | ||
Cost of Goods Sold | 130,000 | ||
Inventory | 130,000 | ||
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