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# Exchange of Assets and Journal Entry

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B.T. Corp, which manufactures shoes, hired a recent college graduate to work in its accounting department. On the first day off work, the accountant was assigned to total a batch of invoices with the use of an adding machine. Before long, the accountant, who had never before seen such a machine, managed to break the machine. B.T. Corp gave the machine plus \$340 to Dick Tracy Business Company (dealer) in exchange for a new machine. Assume the following information about the machines.

B.T. Corp Dick Tracey Co
(old machine) (new machine)
Machine cost \$290 \$270
Accumulated depreciation 140 -0-
Face value 85 425

Instructions:
For each company, prepare the necessary journal entry to record the exchange. (The exchange has commercial substance.)

#### Solution Preview

B.T. Corp, which manufactures shoes, hired a recent college graduate to work in its accounting department. On the first day off work, the accountant was assigned to total a batch of invoices with the use of an adding machine. Before long, the accountant, who had never before seen such a machine, managed to break the machine. B.T. Corp gave the machine plus \$340 to Dick Tracy Business Company (dealer) in exchange for a new machine. ...

#### Solution Summary

The solution explains the journal entry relating to exchange of similar assets with commercial substance

\$2.19

## Exchange of assets (journal entries): when to record gain

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

Cowher Co. Hinson Co.
Equipment (cost) \$450,000 \$825,000
Accumulated depreciation 145,000 450,000
Fair market value of equipment 350,000 350,000

1. Cowher Co. and Hinson Co. traded the above equipment. The exchange has commercial substance.
2. Cowher Co. and Hinson Co. traded the above equipment. The exchange lacks commercial substance.

Assume that the following cases are independent and rely on the following data. Make entries on the books of both companies.
Cowher Co. Hinson Co.
Equipment (cost) \$450,000 \$825,000
Accumulated depreciation 145,000 525,000
Fair market value of equipment 280,000 350,000