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Sloan [31]
3 years ago
6

Cynthia Co. exchanged Building 24 which has an appraised value of $4,800,000, a cost of $7,600,000, and accumulated depreciation

of $3,619,000 for Building M belonging to Waterway Co. Building M has an appraised value of $4,560,000, a cost of $9,096,000, and accumulated depreciation of $4,747,000. The correct amount of cash was also paid. Assume depreciation has already been updated.
Prepare the entries on both companies' books assuming the exchange had no commercial substance.
Business
1 answer:
DENIUS [597]3 years ago
4 0

Answer:

See the journal entries below.

Explanation:

<u>In the Book of Cynthia Co.</u>

Book value of Building 24 = Cost of Building 24 - Accumulated depreciation of Building 24 = $7,600,000 - $3,619,000 = $3,981,000

Gain on disposal of Building 24 = Building 24 an appraised value of - Book value of Building 24 = $4,800,000 - $3,981,000 = $819,000

Basis for Building M = Building M appraisal value - Gain on disposal of Building 24 = $4,560,000 - $819,000 = $3,741,000

Cash = Accumulated Depreciation of Building 24 + Basis for Building M - Cost of Building 24 -  Gain on Disposal of Building 24 = $3,619,000 + $3,741,000 - 7,600,000 - $819,000 = $1,059,000

The journal entries will look as follows:

<u>Accounts Title                                 Debit ($)                   Credit ($)      </u>

Accumulated Depreciation           3,619,000

Building M                                       3,741,000

Cash                                                1,059,000

  Building 24                                                                   7,600,000

  Gain on Disposal                                                             819,000

<u><em>To record the exchange of Building 24 for Building M from Waterway Co. </em></u>

<u>In the Book of Waterway Co. </u>

Building 24 = Building M cost + Cash - Building M depreciation = $9,096,000 + $1,059,000 - $4,747,000 = $5,408,000

The journal entries will look as follows:

<u>Accounts Title                                 Debit ($)                   Credit ($)      </u>

Accumulated Depreciation           4,747,000

Building 24                                    5,408,000                            

  Building M                                                                    9,096,000

  Cash                                                                              1,059,000

<u><em>To record the exchange of Building M for Building 24 from Cynthia Co. </em></u>

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