Chapter 11, Problem 1SSC

Surfing the Standards Cases

Surfing the Standards Case 1: Nonmonetary Exchanges

On rare occasions, a company will acquire property, plant, or equipment in a nonmonetary exchange in which two entities exchange one nonmonetary asset for another nonmonetary asset.

Read sections 5, 20, and 30 of ASC 845-10. Describe the accounting treatment for a nonmonetary exchange that has commercial substance. Apply the accounting to the following two independent scenarios

Scenario 1. ALR Sporting Goods, Inc. has four basketball goals it uses for demonstrations. The goals were originally purchased for $750 each. Accumulated depreciation on the four goals is $300. ALR transacts with NPR Sporting Goods, Inc and exchanges these four goals for one football goalpost. The fair value of each basketball goal is now $700 each. In addition to trading the four basketball goals, ALR pays $500 (net present value—NPR) in cash. What is the journal entry for ALR? Assume that the exchange has commercial substance.

Scenario 2. Assume that instead of ALR trading its basketball goals the company gives NPR 100 shares of its common stock. The stock has a par value of $10 per share and is currently trading at $35 per share. What is the journal entry for ALR?