Purpose: This exercise will allow you to practice recording the exchange of nonmonetary assets.
Thien Le Company exchanged equipment used in its manufacturing operations plus $15,000 in cash for similar equipment used in the operations of Peggy Gunshanan Company. The following information pertains to the exchange:
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Thien Le Co.
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Peggy Gunshanan Co.
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Equipment (cost)
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$ 84,000
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$ 84,000
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Accumulated depreciation
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66,000
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30,000
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Fair value of equipment
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31,500
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46,500
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Cash given up
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15,000
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Instructions
(a) Prepare the journal entries to record the exchange on the books of both companies assuming the exchange lacks commercial substance.
(b) Prepare the journal entries to record the exchange on the books of both companies assuming the fair value of Thien Le Co.'s old asset is $16,500 (rather than $31,500) and the fair value of Peggy Gunshanan's old equipment is $31,500 (rather than $46,500). Assume the exchange lacks commercial substance.
(c) Prepare the journal entries to record the exchange on the books of both companies, assuming the fair value of Thien Le Co.'s old asset is $46,500 (rather than $31,500) and the fair value of Peggy Gunshanan's old equipment is $61,500 (rather than $46,500). Assume the exchange lacks commercial substance.