Indigo Co. Sweet Co. Account Titles and Explanation Debit Credit Indigo Company:

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Indigo Co.

Sweet Co.

Account Titles and Explanation

Debit

Credit

Indigo Company:

Sweet Company:

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Account Titles and Explanation

Debit

Credit

Indigo Company

Sweet Company

Indigo Company exchanged equipment used in its manufacturing operations plus $3,540 in cash for similar equipment used in the operations of Sweet Company. The following information pertains to the exchange.

Indigo Co.

Sweet Co.

Equipment (cost) $33,040 $33,040 Accumulated depreciation 22,420 11,800 Fair value of equipment 14,750 18,290 Cash given up 3,540

Explanation / Answer

Caculation of gain or loss

Journal entry

Has commercial substance

Lacks commercial substance

Indigo Sweet Fair value of old equipment 14750 18290 Less: Book value of equipment (33040-22420) 10620 (33040-11800) (21290) Gain or loss on exchange $4130 ($2950)

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