Formulas Data Review View File Home nsert Page Layout 1 AutoSum Recently Financi
ID: 2537063 • Letter: F
Question
Formulas Data Review View File Home nsert Page Layout 1 AutoSum Recently Financial Logical Text Date & Lookup & Math &More; Insert Function Time . Reference Trig- Functions Used- Function Library 1 Mathews Company exchanged equipment used in its manufacturing operations $7,000 in cash for similar equipment used in the 3 operations of Biggio Company. The following information pertains to the exchange. Mathews Co. Biggio Co $154,000 $36,000 $125,000 $7,000 $142,000 $18,000 $132,000 Equipment (cost) Accumulated depreciation 8 Fair value of equipment Cash given up 10 11 Instructions 12 (a) Prepare the journal entries to record the exchange on the books of both companie 3 Assume that the exchange lacks commercial substance 14 Mathewes 15 Book Value $18,000 Fair Value $125,000 Gain (Loss) 7.000 assest acquired Cash Acc Dep 125,000 7000 19 536,000 20 $154,000 23 24 Baiggio 25 Book Value 536,000 Fair Value mterest Capitalization, Exchange $132.000 Gan(Loss) (10.000) - i Ready Type here to searchExplanation / Answer
Ans)
Calculation of gai or loss
Mathews Co Biggio Co
Fair value of old equipment 125,000 132,000
Less: Book value of old equipment
(154,000 - 36000) (118,000) (124000)
(142,000 - 18,000)
Gain or loss on exchange 7000 8000
a) Exchange lacks Commercial substance
Mathews
Equipment (118000+ 7000) 125000
Accumulated depreciation 36000
Equipment 154,000
Cash 7000
New Equipment = Book Value of old+ Cash Paid
Defer all the Gains since no Cash Received
Biggio Co
Equipment (New) 125,000
Accumulated depreciation 18000
Cash 7000
Gain on exchange 8000
Equipment (Old) 142000
Companies recognize aloss immediatelywhether theexchange has commercial substance or not.
b) Exchange has commercial substance
Mathews Co
New Equipment = Cash Paid + Fair Value of old
Equipment (New) (7000 + 125,000) 132,000
Accumulated depreciation 36,000
Cash 7000
Equipment (Old) 154,000
Gain on exchange 7000
Biggio.Co
Equipment (New) 125,000
Accumulated depreciation 18000
Cash 7000
Gain on exchange 8000
Equipment (Old) 142,000