Question

Beeman Company exchanged machinery with an appraised value of $3,538,500, a recorded cost of $5,435,000 and accumulated depreciation of $2,717,500 with Lacey Corporation for machinery Lacey owns. The machinery has an appraised value of $3,358,500, a recorded cost of $6,430,000, and accumulated depreciation of $3,536,500. Lacey also gave Beeman $180,000 in the exchange. Assume depreciation has already been updated. Prepare the entries on both companies' books assuming that the exchange had commercial substance. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Answer 1

Check the explanation

Step-by-step explanation:

a.) Commercial Substance :

Beeman Machinery........................................................................Dr. 3,390,000

Cash............................................................................................Dr. 120,000

Accumulated Depreciation of Machinaery...............................................2,700,000

Gain on Disposal of Machinary..............................................................810,000

Machinery...........................................................................................5,400,000

Working:

Cost............................. 5,400,000

Accumulated Dep............ 2,700,000

Book Value......................................2,700,000

Face Value......................................3,510,000

Gain...............................................$ 810,000

Lacey machinery.......................................................Dr. 3,510,000

Accum Dep of Machinery...........................................Dr. 3,564,000

Gain on Disposal of Machinery.....................................474,000

Machinery.................................................................6,480,000

Cash.........................................................................120,000

b.) No Commercial Substance

Beeman Machinery.........................................................................Dr. 2,607,692

Cash.............................................................................................Dr. 120,000

Accumulated Depreciation - Machinery.............................................Dr.2,700,000

Gain on Disposal of Machinery...................................................27,692

Machinery................................................................................5,400,000

$ 120,000 / ( $ 120,000 + $ 3,390,000 ) * $ 810,000 = $ 27,692

Lacey Machinery...................................................................................Dr. $ 3,036,000

Accumulated Depreciation - Machinery...................................................Dr. $ 3564,000

Machinery...............................................................................6,480,000

Cash......................................................................................120,000