Question

Vaughn Company exchanged equipment used in its manufacturing operations plus $4,020 in cash for similar equipment used in the operations of Bramble Company. The following information pertains to the exchange.
Vaughn Co. Bramble Co.
Equipment (cost) $37,520 $37,520
Accumulated depreciation 25,460 13,400
Fair value of equipment 16,750 20,770
Cash given up 4,020
Required:
(a) Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance.

Answer 1

Answer and Explanation:

The journal entries are shown below:

For Vaughn:

Equipment $16,080

Accumulated Depreciation $25,460

             To Equipment  $37,520

              To Cash           $4,020

(Being the exchange is recorded)

For Bramble:

Equipment(new)  $16,750

Accumulated Depreciation $13,400

Cash   $4,020

Loss on exchange(balance item)  $3,350

         To Equipment(old)  $37,520

(Being the exchange is recorded)

Only these entries are passed and it attains lacking of commercial substance