Pina Company exchanged equipment used in its manufacturing operations plus $3,720 in cash for similar equipment used in the operations of Grouper Company. The following information pertains to the exchange.
|
Pina Co. |
Grouper Co. |
|||||
|---|---|---|---|---|---|---|
|
Equipment (cost) |
$34,720 | $34,720 | ||||
|
Accumulated depreciation |
23,560 | 12,400 | ||||
|
Fair value of equipment |
15,500 | 19,220 | ||||
|
Cash given up |
3,720 | |||||
Part 1
Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
| Calculation of Gain or Loss: | |||
| Arruza($) | LoBianco($) | ||
| Fair Value of Old Equipment | 15500 | 19220 | |
| Less: Book Value of Equipment | -11160 | -22320 | |
| Gain (or Loss) on Exchange | 4340 | -3100 | |
| (a) Lacks Commercial Substance | |||
| Company | Account Title and Explanation | Debit | Credit |
| Arruza | Equipment (11160 + 3720) | 14880 | |
| Accumulated Depreciation | 23560 | ||
| Equipment | 34720 | ||
| Cash | 3720 | ||
| (Being equipment exchanged) | |||
| LoBianco | Equipment (New) | 15500 | |
| Accumulated Depreciation | 12400 | ||
| Cash | 3720 | ||
| Loss on exchange | 3100 | ||
| Equipment(Old) | 34720 | ||
| (Being equipment exchanged) | |||
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