Chapter 10, Problem 10.16E

(a)

To determine

Journalizing: It is the process of recording the transactions of an organization in a chronological order. Based on these journal entries recorded, the amounts are posted to the relevant ledger accounts.

Accounting rules for journal entries:

• To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
• To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

Cost: Cost refers to an amount paid or to be paid for any purpose. It is the monetary value of the time, efforts and resources utilized to do or get something.

Accumulated Depreciation: Accumulated depreciation refers to the cumulative depreciation charged on the asset every year till date. It is a contra-asset account which is credited when depreciation is charged. It is shown as a deduction from the asset in the balance sheet.

Commercial Substance: Commercial substance is said to exist in an event only when the transaction results in generation of cash flows in the future periods.

To Prepare: The journal entries to record the exchange of equipment for R Company.

(b)

To determine

To Prepare: The journal entries to record the exchange of equipment for O Company.