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Book Entries - Bakken and Farley Co.

Assume that the following cases are independent and rely on the following data. Make the necessary entries on the books of both companies.

See attached file for data.

Case 1: Bakken Co. and Farley Co. traded the above equipment. Assume the transaction has commercial substance.

Case 2: Bakken Co. and Farley Co. traded the above equipment. Assume the transaction lacks commercial substance.

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Solution Preview

Before we start to answer this specific question, I think it is important to first understand the following concepts:
Monetary Transactions: At least 25% of the total value is in cash. Gains and losses are always recorded
Non-Monetary Transactions: Less than 25% of the total value is in cash. Losses are always recorded. Gains are only recorded if commercial substance exists, unless the company receives cash, in which case a partial gain can be recorded.

Case 1:
** For Farley Co., this is a non-monetary transaction because cash is less than 25% of the total value in transaction (cash $84,000 / Fair Market Value $420,000 = 20%).
The Net Book Value of the equipment ...

Solution Summary

This solution provides book entries for a company.

$2.19