Question

Santana Company exchanged equipment used in its manufacturing operations plus $2,000 in cash for similar equipment...

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

  1. Prepare the journal entries to record the exchange on the book of Delaware Co.  Assume that the exchange lacks commercial substance.
  2. Prepare the journal entries to record the exchange on the book of Delaware Co.  Assume that the exchange has commercial substance.

Homework Answers

Answer #1

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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