Assets Acquired by Exchange Bremer Company made the following exchanges of assets during 2019:
- 1. Acquired a more advanced machine worth $10,000 by paying $2,000 cash and giving up a machine that had originally cost $40,000 and has a book value of $12,000,
- 2. Acquired a building worth $55,000 by paying $5,000 cash and giving up a piece of land that had originally cost $35,000.
- 3. Acquired a more advanced machine worth $20,000 by paying $5,000 cash and giving up a machine that had originally cost $13,000 and has a book value of $11,000.
- 4. Acquired a car by giving up a truck that had originally cost $20,000, has a book value of $15,000, and has a “blue book” value of $16,800. In addition, the company received $1,000 cash.
Required:
Prepare Bremer’s
Journalize entries for each exchange.
Explanation of Solution
Property, Plant, and Equipment:
Property, Plant, and Equipment refers to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue.
Journal entry:
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Accounting rules for Journal entries:
- To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
- To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains
Prepare journal entries:
Date | Account titles and explanation | Debit ($) | Credit ($) |
Machine (new) | 10,000 | ||
Accumulated depreciation for machine (1) | 28,000 | ||
Loss on exchange (2) | 4,000 | ||
Machine (old) | 40,000 | ||
Cash | 2,000 | ||
(To record improvements made to machine) | |||
Building | 55,000 | ||
Land | 35,000 | ||
Cash | 5,000 | ||
Gain on exchange (3) | 15,000 | ||
(To record acquisition of building by exchanging machine) | |||
Machine (new) | 20,000 | ||
Accumulated depreciation for machine (4) | 2,000 | ||
Machine (old) | 13,000 | ||
Cash | 5,000 | ||
Gain on exchange (5) | 4,000 | ||
(To record the replacement of machine) | |||
Equipment (car) (6) | 15,800 | ||
Accumulated depreciation for truck | 5,000 | ||
Cash | 1,000 | ||
Equipment (truck) | 20,000 | ||
Gain on exchange (7) | 1,800 | ||
(To record the acquisition of car by exchanging truck) | |||
Table (1)
To record improvements made to machine:
- Machine (new) is an asset and it is increased. Therefore, debit machine account by $10,000.
- Accumulated depreciation for machine is a contra asset account and it is decreased. Therefore, debit accumulated depreciation for machine account by $28,000.
- Loss on exchange is a component of stockholders’ equity and it is decreased. Therefore, debit loss on exchange account by $4,000.
- Machine (old) is an asset and it is decreased. Therefore, credit machine account by $40,000.
- Cash is an asset and it is decreased. Therefore, credit cash account by $2,000.
To record acquisition of building by exchanging machine:
- Building is an asset and it is increased. Therefore, debit building account by $55,000.
- Land is an asset and it is decreased. Therefore, credit Land account by $35,000.
- Cash is an asset and it is decreased. Therefore, credit cash account by $5,000.
- Gain on exchange is a component of stockholders’ equity and it is increased. Therefore, credit gain on exchange account by $15,000.
To record the replacement of machine:
- Machine (new) is an asset and it is increased. Therefore, debit machine account by $20,000.
- Accumulated depreciation for machine is a contra asset account and it is decreased. Therefore, debit accumulated depreciation for machine account by $2,000.
- Machine (old) is an asset and it is decreased. Therefore, credit machine account by $13,000.
- Cash is an asset and it is decreased. Therefore, credit cash account by $5,000.
- Gain on exchange is a component of stockholders’ equity and it is increased. Therefore, credit gain on exchange account by $1,800.
To record the acquisition of car by exchanging truck:
- Equipment (car) is an asset and it is increased. Therefore, debit equipment account by $15,800.
- Accumulated depreciation for truck is a contra asset account and it is decreased. Therefore, debit Accumulated depreciation for truck account by $5,000.
- Cash is an asset and it is increased. Therefore, debit cash account by $1,000.
- Equipment (truck) is an asset and it is decreased. Therefore, credit Equipment (truck) account by $20,000.
- Gain on exchange is a component of stockholders’ equity and it is increased. Therefore, credit gain on exchange account by $1,800.
Working notes:
(1)Calculate the accumulated depreciation of machine:
(2)Calculate the loss on exchange:
(3)Calculate the gain on exchange:
(4)Calculate the accumulated depreciation of machine:
(5)Calculate the gain on exchange:
(6)Calculate the cost of the equipment:
(7)Calculate the gain on exchange:
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Chapter 10 Solutions
Intermediate Accounting: Reporting And Analysis
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