Question

The Morgan Company exchanges a piece of equipment having a book value of $55,000 and a...

The Morgan Company exchanges a piece of equipment having a book value of $55,000 and a fair value of $61,000 to Ethan Company who exchanges a piece of equipment with a book value of $45,000 and a fair value of $63,000. The equipment has commercial value. Morgan also pays an additional $2,000 in cash to Ethan.

At what amount should Morgan record the new piece of equipment?

Assume the same facts above except that the equipment has no commercial substance to either party.

a.What amount should Morgan record the new asset.

b.What amount should Ethan record its new asst.

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Answer #1
At what amount should Morgan record the new piece of equipment?
GENERAL JOURNAL
Accounts Debit     Credit
Equipment (new) $                  63,000.00    
   
          Gain on Exchange $    6,000.00
           Cash $    2,000.00
Equipment (old) $ 55,000.00
To record exchange of equipment
a.What amount should Morgan record the new asset.
GENERAL JOURNAL
Accounts Debit Credit
Equipment (new) $                  57,000.00    
          Cash $    2,000.00
Equipment (old)     $ 55,000.00
To record exchange of equipment
b.What amount should Ethan record its new asst.
GENERAL JOURNAL
Accounts Debit Credit
Equipment (new) $                  43,571.43    
         Gain on Exchange $        571.43
Cash $                    2,000.00
Equipment (old)     $ 45,000.00
To record exchange of equipment
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