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Calculate recognized gain on exchange; journalize entries

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Part A

Nonmonetary exchange.
Layne Co. has a machine that cost $255,000 on March 20, 2007. This old machine had an estimated life of ten years and a salvage value of $15,000. On December 23, 2011, the old machine is exchanged for a new machine with a market value of $162,000. The exchange lacked commercial substance. Layne also received $18,000 cash. Assume that the last fiscal period ended on December 31, 2010, and that straight-line depreciation is used.

Instructions
(a) Show the calculation of the amount of gain or loss to be recognized by Layne Co. from the exchange. (Round to the nearest dollar.)
(b) Prepare all entries that are necessary on December 23, 2011. Show a check of the amount recorded for the new machine.

Part B
Hodge Co. exchanged Building 24 which has an appraised value of $3,200,000, a cost of $5,060,000, and accumulated depreciation of $2,400,000 for Building M belonging to Fine Co. Building M has an appraised value of $3,008,000, a cost of $6,020,000, and accumulated depreciation of $3,168,000. The correct amount of cash was also paid. Assume depreciation has already been updated.

Instructions
Prepare the entries on both companies' books assuming the exchange had no commercial substance. Show a check of the amount recorded for Building M on Hodge's books. (Round to the nearest dollar.)

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Solution Summary

The expert calculates recognized gain on exchange. The entries are journalized.

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ANSWERS

PART A
Instruction A
Accumulated depreciation = (255,000-15,000)/10*(4 years, 9 months) = 114,000
Book value = 255,000 - 114,000 = 141,000
Gain (loss) = 162,000+18,000 - 141,000 = 39,000 => however since this exchange has no ...

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