Santana Company exchanged equipment used in its manufacturing operations plus $2,000 in cash for similar equipment used in the operations of Delaware Company. The following information pertains to the exchange.
|
Santana Co. |
Delaware Co. |
|
|
Equipment (cost) |
$28,000 |
$18,000 |
|
Accumulated depreciation |
19,000 |
10,000 |
|
Fair value of equipment |
13,000 |
15,000 |
|
Cash given up |
2,000 |
a)The journal entries to record the exchange on the book of Delaware Co. Assume that the exchange lacks commercial substance is as follows:
| No. | Account and Explanation | Debit($) | Credit($) |
|---|---|---|---|
| 1) | Cash | 2,000 | |
| Equipment | 16,000 | ||
| Accumulated Depreciation - Equipment | 10,000 | ||
| Equipment | 28,000 | ||
| (Recorded the exchange with no commercial substance) |
b)The journal entries to record the exchange on the book of Delaware Co. Assume that the exchange has commercial substance is as follows:
| No. | Account and Explanation | Debit($) | Credit($) |
|---|---|---|---|
| 1) | Cash | 2,000 | |
| Equipment | 13,000 | ||
| Accumulated Depreciation - Equipment | 10,000 | ||
| Loss on Sale of Equipment | 3,000 | ||
| Equipment | 28,000 | ||
| (Recorded for the exchange with the commercial substance) |
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