Question

Wildhorse Company exchanged equipment used in its manufacturing operations plus $4,200 in cash for similar equipment used in the operations of Sheffield Company. The following information pertains to the exchange.

Equipment (cost) Accumulated depreciation Fair value of equipment Cash given up

Wildhorse Co.

$39,200 26,600 17,500

4,200

Sheffield Co.

$39,200 14,000 21,700

Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance.

Answer 1

In the books of WildhorseCompany
Accounts title and Explanations	Debit ($)	Credit ($)
Equipment - New (Bal. Fig.)	$16,800
Accumulated depreciation	$ 26,600
Equipment		$39,200
Cash		$ 4,200
(To record the exchange that lacks Commercial Substance)
In the books of Sheffield Company
Accounts title and Explanations	Debit ($)	Credit ($)
Cash	$ 4,200
Equipment - New	$ 17,500
Loss on exchange - (Bal. Fig.)	$ 3,500
Accumulated depreciation	$ 14,000
Equipment		$39,200
(To record the exchange that lacks Commercial Substance)