More exchanges... H...

Discussion in 'Accounting' started by hi, Nov 15, 2003.

  1. hi

    hi Guest

    How does this one look?

    Liberty Corp owns a machine that originally cost $200,000, upon which there
    is accumulated depreciation of $140,000.

    The machine and cash of $80,000 are given for a new machine that fulfills
    the same function and has a fair value of $120,000.

    Loss Dr. 20,000
    New Machine Dr. 120,000
    Acc. Deprec Dr 140,000
    Old Machine Cr. 200,000
    Cash Cr. 80,000
    hi, Nov 15, 2003
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  2. hi

    hi Guest

    Is this correct for the problem?

    Cash Dr. $40,000
    New Machine Dr. $70,000
    Acc. Depr. Dr. $140,000
    Old Machine Cr. $200,000
    Gain Cr. $50,000

    Explanation: The assets exchanged are similar. The FMV of the exchanged
    asset (70,000) is greater than the book value of our asset (60,000).
    Therefore a gain is recognized. The cash received is 25% or more of the
    total consideration, therefore you must treat the transaction as a monetary
    transaction. Record the acquired asset at the fair value (70,000) and
    recognize the gain (50,000).
    hi, Nov 15, 2003
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  3. hi

    Janice Davis Guest

    Your first posting was correct.

    Janice Davis, Nov 15, 2003
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