1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
Elis [28]
3 years ago
7

Two independent companies, Denver and Bristol, each own a warehouse, and they agree to an exchange in which no cash changes hand

s. The following information for the two warehouses is available: Denver Bristol Cost $95,000 $49,000 Accumulated depreciation 56,000 22,000 Fair value 35,500 35,500 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. 3. Next Level What is the justification of accounting for the exchange differently when the exchange has commercial substance versus when it does not?
Business
1 answer:
Maru [420]3 years ago
3 0

Answer:

Denver and Bristol

1. Assuming the exchange has commercial substance, it is recorded at fair value:

Journal Entries:

a) Denver

Debit Bristol $35,500

Debit Loss on Disposal $3,500

Credit Warehouse $39,000

To record the disposal of Warehouse to Bristol at fair value.

Debit Accumulated Depreciation $56,000

Credit Warehouse $56,000

To close the accumulated depreciation account on disposal.

Debit Warehouse $35,500

Credit Bristol $35,500

To record the acquisition of Bristol warehouse at fair value.

b) Bristol:

Debit Denver $35,500

Credit Warehouse $27,000

Credit Gain on Disposal $8,500

To record the disposal of warehouse to Denver at fair value.

Debit Accumulated Depreciation $22,000

Credit Warehouse $22,000

To close the accumulated depreciation account on disposal.

Debit Warehouse $35,500

Credit Denver $35,500

To record the acquisition of Denver warehouse at fair value.

2. Assuming the exchange does not have commercial substance, it is recorded on carryover basis:

Journal Entries:

a) Denver:

Debit Bristol $39,000

Credit Warehouse $39,000

To record the disposal of Warehouse to Bristol.

Debit Accumulated Depreciation $56,000

Credit Warehouse $56,000

To close the accumulated depreciation account on disposal.

Debit Warehouse $27,000

Credit Bristol $27,000

To record the acquisition of Bristol warehouse.

b) Bristol:

Debit Denver $27,000

Credit Warehouse $27,000

To record the disposal of warehouse.

Debit Accumulated Depreciation $22,000

Credit Warehouse $22,000

To close the accumulated depreciation account on disposal.

Debit Warehouse $39,000

Credit Denver $39,000

To record the acquisition of Denver warehouse.

3. Next Level:  The justification of accounting for the exchange differently is that when the transaction has commercial substance, it is accounted for at fair value.  Then, there will a recognized gain or loss on disposal because this is always a difference in the net book value of an asset and its fair value.  When it is not accounted for at fair value, it is accounted for on carryover basis.   Carryover basis means that it recognized cost remains the same as when the giver held the asset.

Explanation:

According to FASB, "A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange."

Therefore, a business transaction is said to have commercial substance when it is expected that the future cash flows of a business will change as a result of the transaction.

Carryover basis is the value based on the value of the asset before the exchange, i.e. when it was held by the owner.

Fair value is the market value of an asset.  It is the price at which the asset will be exchanged between knowledgeable third parties at at an arm's length.

You might be interested in
Becky's Bakery sells three large muffins for every two small ones. A small muffin sells for $3.50 with a variable cost of $2.00.
Lyrx [107]

Answer:

Contribution margin small muffin= 3.5-2= $1.5

Contribution margin large muffin = 6-3= $3

(2/5*1.5)+(3/5*3)= $2.40

Explanation:

4 0
2 years ago
Bethany Walsh is a business manager at Dixon Productions. Although she does not have a background in technology, her job require
blagie [28]

Answer:

The correct answer is A. Dashboard .

Explanation:

A board contains all the information necessary to carry out the decision-making process in the best way, since in the case of Bethany, who is not very expert in technology, it allows her to execute her work efficiently and without risks of not taking into account information. relevant. This information can be modified at any time depending on the circumstances.

5 0
3 years ago
Read 2 more answers
You started a new job working 4 days a week. During a work day you can complete 3 tasks per hour. You also take a half hour for
aleksandr82 [10.1K]
21 tasks, if you use your lunch break and your 2 15 minute breaks
4 0
2 years ago
Which of the following is true about checks?
tankabanditka [31]

Incomplete question. Here's the remaining question;

A. It is a two-party instrument.

B. It necessitates that the seller has to be both the drawer and the payee.

C. It is always payable on demand.

D. It requires that the drawer is holding the drawee's money.

Answer:

C

Explanation:

Note that, to be always paid on demand implies that any time a request is made (demanded) to the bank will be fulfilled.

Therefore, an individual has a sense of security using checks to receive payments.

4 0
3 years ago
Define the law of demand in a perfectly competitive market
xz_007 [3.2K]
Is a microeconomics law that states, all other factors being equal, as the price of a good or service increases, consumers demand for the good or service will decrease, and vice versa
3 0
2 years ago
Other questions:
  • The fourth step of the marketing research approach is to __________.
    7·1 answer
  • On January ​3, Halsall Corporation purchased 1,800 shares of the​ company's ​$1 par value common stock as treasury​ stock, payin
    9·1 answer
  • The Ralston Company manufactures a special line of graphic tubing items. The company estimates it will sell 81,000 units of this
    9·1 answer
  • Folsom Advertising, Inc. is considering an investment in a new information system. The new system requires an investment of $1,8
    12·1 answer
  • If the marginal benefit of consuming another unit of a good is positive, then to reach the allocatively efficient level of outpu
    11·1 answer
  • Edison's Lights makes light bulbs. The company is currently producing well below its full capacity. Lamp Land has approached Edi
    10·1 answer
  • Bond portfolio immunization techniques balance ________ and ________ risk. price; reinvestment price; liquidity credit; reinvest
    7·1 answer
  • Inflation makes certain things less valuable in real terms, including: Group of answer choices your full college scholarship. re
    11·1 answer
  • Select the statement that is true of common stock. Companies issue dividends to common stockholders before preferred stockholder
    8·1 answer
  • matching question match the method of depreciation to the respective definition. declining balance declining balance drop zone e
    6·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!