Question

On August 1, Gold Company exchanged a machine for a similar machine owned by Cowboy Company and also received $7,000 cash from Cowboy Company. Gold's machine had an original cost of $80,000, accumulated depreciation to date of $14,500, and a fair market value of $60,000. Cowboy’s machine had an original cost of $95,000 and a book value of $45,000 and a fair value of $53,000.

Required:

a. Prepare the necessary journal entry by Gold Company to record this transaction.

b. Prepare the necessary journal entry by Cowboy Company to record this transaction.

Answer 1

1.

Title	Debit	Credit
Machine (new)	$ 53,000
Accumulated depreciation	$ 14,500
Cash	$    7,000
Loss on exchange of assets	$    5,500
Machine (old)		$ 80,000
(To record exchange of assets)

2.

Title	Debit	Credit
Machine (new)	$ 60,000
Accumulated depreciation	$ 50,000
Gain on exchange of assets		$    8,000
Cash		$    7,000
Machine (old)		$ 95,000
(To record exchange of assets)

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