Question

Omega Corp. has entered into a transaction with Lively Inc. Omega Corp will give its equipment to Lively Inc. in exchange for Lively's equipment. Omega Corp will also pay Lively Inc. $30,000 cash. Omega Corp's equipment originally cost $250,000 when it was purchased 2 years ago and currently has $80,000 of accumulated depreciation and an estimated fair value of $230,000. Lively's equipment has a cost of $212,000 and accumulated depreciation of $35,000. The fair value of Lively Inc's equipment is determined to be $260,000.
Required:

A. Prepare the journal entry for Omega Corp assuming the exchange has commercial substance.
B. Prepare the journal entry for Omega Corp assuming the exchange lacks commercial substance.

Answer 1

Answer:

Explanation:

A.

Equipment-from Lively    $260,000

   Accumulated Depreciation  Dr.$80,000

   Equipment-old                      Cr. $250,000

    Cash                                      Cr.$30,000

       Gain on Exchange                Cr.$60,000

B.    

Equipment-from Lively (212,000-35,000)      Dr.$177,000

Accumulated Depreciation                             Dr.$80,000

Loss on exchange (balancing figure)            Dr.$23,000

Equipment old                                                  Cr.$250,000

Cash                                                                   Cr.$30,000