Southern Company owns a building that it leases to others. The building’s fair v
ID: 2487711 • Letter: S
Question
Southern Company owns a building that it leases to others. The building’s fair value is $2,250,000 and its book value is $1,480,000 (original cost of $2,850,000 less accumulated depreciation of $1,370,000). Southern exchanges this for a building owned by the Eastern Company. The building’s book value on Eastern’s books is $1,630,000 (original cost of $2,450,000 less accumulated depreciation of $820,000). Eastern also gives Southern $225,000 to complete the exchange. The exchange has commercial substance for both companies. Required: Prepare the journal entries to record the exchange on the books of both Southern and Eastern
Explanation / Answer
Assets are taken on fair value
Fair value of eastern building = 2250000 - 225000 = 2025000
books of both Southern
Cash debit 225000
Building - new 2025000
Accum deprec - building debit 1370000
Building - old (acct balance) credit 2850000
Gain credit 770000
books of both eastern
building debit 2250000
accumulated dep. debit 820000
credit cash 225000
credit old building 2450000
gain in exchange 415000