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Two independent companies, Denver and Bristol, each own a warehouse, and they agree to an exchange in which no cash changes hands. The following information for the two warehouses is available:

Denver Bristol
Cost $80,000 $31,500
Accumulated depreciation 60,000 25,000
Fair value 17,000 17,000
Required:
1. Assuming the exchange has commercial substance, prepare journal entries for Denver and Bristol to record the exchange.
2. Assuming the exchange does not have commercial substance, prepare journal entries for Denver and Bristol to record the exchange.

User Phyliss
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1 Answer

7 votes

Answer and Explanation:

The journal entries are shown below

1.

On Denver books

Equipment Dr $17,000

Accumulated depreciation $60,000

Loss on sale of equipment $3,000

To Equipment $80,000

(Being equipment recorded)

On Bristol books

Equipment Dr $17,000

Accumulated depreciation $25,000

To Gain on sale of equipment $10,500

To Equipment $31,500

(Being equipment recorded)

2.

On Denver books

Equipment Dr $20,000

Accumulated depreciation $60,000

To Equipment $80,000

(Being equipment recorded)

On Bristol books

Equipment Dr $6,500

Accumulated depreciation $25,000

To Equipment $31,500

(Being equipment recorded)

User Mqpasta
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