More exchanges... H...


H

hi

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
--
 
Ad

Advertisements

H

hi

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).
 
Ad

Advertisements

J

Janice Davis

Your first posting was correct.
Janice

hi said:
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).
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Similar Threads


Top