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28 November, 08:28

Beeman Company exchanged machinery with an appraised value of $3,538,500, a recorded cost of $5,435,000 and accumulated depreciation of $2,717,500 with Lacey Corporation for machinery Lacey owns. The machinery has an appraised value of $3,358,500, a recorded cost of $6,430,000, and accumulated depreciation of $3,536,500. Lacey also gave Beeman $180,000 in the exchange. Assume depreciation has already been updated. Prepare the entries on both companies' books assuming that the exchange had commercial substance. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

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  1. 28 November, 10:41
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    Check the explanation

    Explanation:

    a.) Commercial Substance:

    Beeman Machinery ... Dr. 3,390,000

    Cash ... Dr. 120,000

    Accumulated Depreciation of Machinaery ... 2,700,000

    Gain on Disposal of Machinary ... 810,000

    Machinery ... 5,400,000

    Working:

    Cost ... 5,400,000

    Accumulated Dep ... 2,700,000

    Book Value ... 2,700,000

    Face Value ... 3,510,000

    Gain ... $ 810,000

    Lacey machinery ... Dr. 3,510,000

    Accum Dep of Machinery ... Dr. 3,564,000

    Gain on Disposal of Machinery ... 474,000

    Machinery ... 6,480,000

    Cash ... 120,000

    b.) No Commercial Substance

    Beeman Machinery ... Dr. 2,607,692

    Cash ... Dr. 120,000

    Accumulated Depreciation - Machinery ... Dr. 2,700,000

    Gain on Disposal of Machinery ... 27,692

    Machinery ... 5,400,000

    $ 120,000 / ($ 120,000 + $ 3,390,000) * $ 810,000 = $ 27,692

    Lacey Machinery ... Dr. $ 3,036,000

    Accumulated Depreciation - Machinery ... Dr. $ 3564,000

    Machinery ... 6,480,000

    Cash ... 120,000
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