Iniesta Company traded machinery with original cost of $220,000 and accumulated

Question

Iniesta Company traded machinery with original cost of $220,000 and accumulated depreciation of $30,000. It received in exchange from Xavi Company a machine with a fair value of $200,000. Iniesta also paid cash of $20,000 in the exchange. Xavi’s machine has a book value of $190,000. What amount of gain or loss should Iniesta recognize on the exchange assuming the transaction lacks commercial substance? What are the journal entries for Iniesta with and without commercial substance? What are the journal entries for Xavi company?

Explanation / Answer

Answer :

Exchange of assets regardless of whether the assets are similar, are measured at FaiValue unless :

In the given problem the asset of the Xavi company asset can be valued at fair value. Hence the entry in the books of the Iniesta Compnay is

Asset aquired A/c Dr $ 2,00,000/-

Loss on Exchange of Asset A/c Dr $ 10,000/-

To Cash A/c $ 20,000/-

To Asset given A/c $ 1,90,000/-

Accounting in Xavi Company

Asset aquired A/c Dr $ 2,00,000/-

Cash A/ c Dr $ 20,000/-

To Gain on the exchange of Asset A/c $ 30,000/-

To Asset given A/c $ 1,90,000/-

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects