INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING
8th Edition
ISBN: 9780078096488
Author: SPICELAND
Publisher: MCG
Question
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Chapter 10, Problem 10.6P
To determine

Property, Plant, and Equipment:

Property, Plant, and Equipment refers to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue.

To Prepare: The journal entries to record the exchange on the books of Company S.

Expert Solution & Answer
Check Mark

Explanation of Solution

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

  Cash   140,000  
  New Building   1,260,000  
  Accumulated depreciation – Old building   1,200,000  
  Old Building     2,000,000
  Gain on exchange of assets     600,000
  (To record the exchange on the books of R Company.)      

Table (1)

Working note:

Determine the value of new building.

Value of building = Fair value (Building)Cashpaid= $1,400,000$140,000=$1,260,000

Determine the gain on exchange of assets.

Gain on exchange of asset = ((Fair value of Company S's asset)(Original cost of Company S'sasset  Accumulated depreciation) )= ($1,400,000)($2,000,000$1,200,000)=$1,400,000$800,000=$600,000

  • Cash is an asset account, and increased. Therefore, debit Cash account with $140,000.
  • New Building increases the asset account. Hence, debit New Equipment account with $1,260,000.
  • Accumulated depreciation – old asset is a contra asset. It increases the value of asset account. Therefore, debit Accumulated Depreciation with $1,200,000.
  • Old Building is an asset account, and decreased. Therefore, credit Old Equipment account with $2,000,000.
  • Gain on sale of exchange of assets increases the equity by $10,000. Hence, credit Gain on sale of exchange of assets with $600,000.

Prepare the journal entries to record the exchange on the books of Company E.

Date Account Title and Explanation

Post

Ref.

Debit

($)

Credit

($)

  New Building   1,400,000  
  Accumulated depreciation – Old Building   650,000  
  Cash     140,000
  Old Building     1,600,000
  Gain on exchange of buildings     310,000
  (To record the exchange on the books of P Company.)      

Table (2)

Working note:

Determine the value of new building.

Value of building = Fair value (Building)+Cashpaid= $1,260,000+$140,000=$1,400,000

Determine the gain on exchange of buildings.

Gain on exchange of buildings = ((Fair value of Company E's asset)(Original cost of Company E'sasset  Accumulated depreciation) )= ($1,260,000)($1,600,000$650,000)=$1,260,000$950,000=$310,000

  • New Building increases the asset account. Hence, debit New Equipment account with $1,400,000.
  • Accumulated depreciation – old asset is a contra asset. It increases the value of asset account. Therefore, debit Accumulated Depreciation with $650,000.
  • Cash is an asset account and decreased. Therefore, credit Cash account with $140,000.
  • Old Building is an asset account, and decreased. Therefore, credit Old Equipment account with $1,600,000.
  • Gain on exchange of buildings increases the equity by $310,000. Hence, credit Gain on exchange of buildings with $310,000.

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Chapter 10 Solutions

INTERMEDIATE ACCOUNTING

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