Question 1: Bonita Corporation, which manufactures shoes, hired a recent college graduate to work in its accounting department. On the first day of work, the accountant was assigned to total a batch of invoices with the use of an adding machine. Before long, the accountant, who had never before seen such a machine, managed to break the machine. Bonita Corporation gave the machine plus $401 to Windsor Business Machine Company (dealer) in exchange for a new machine. Assume the following information about the machines.
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Bonita Corp. (Old Machine)
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Windsor Co. (New Machine)
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Machine cost
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$342
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$319
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Accumulated depreciation
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165
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-0-
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Fair value
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101
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502
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For each company, prepare the necessary journal entry to record the exchange. (The exchange has commercial substance.)
Question 2: Blue Company exchanged equipment used in its manufacturing operations plus $3,600 in cash for similar equipment used in the operations of Kingbird Company. The following information pertains to the exchange.
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Blue Co.
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Kingbird Co.
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Equipment (cost)
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$33,600
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$33,600
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Accumulated depreciation
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22,800
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12,000
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Fair value of equipment
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15,000
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18,600
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Cash given up
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3,600
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Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance.
Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange has commercial substance.
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