Margot Co exchanged equipment with Wiese Co The following in

Margot Co. exchanged equipment with Wiese Co.

The following information pertains to the two pieces of equipment:

Margot Co.     

Original Cost                          $ 250,000

Accumulated Depreciation         100,000

Market Value                              200,000

Wiese Co.

Original Cost                          $ 300,000

Accumulated Depreciation          140,000

Market Value                              190,000

Wiese pays $10,000 to Margot.

Assume that the assets exchanged are similar and the transaction lacks commercial substance.

Assume that the transaction has commercial substance. Indicate the amounts recognized by Margot and Wiese at the time of exchange of assets:

Solution

When the exchange lacks commercial substance: Journal entries to be passed: Margot Co. Debit Credit Equipment 190000 Accumulated depreciation 100000 Cash 10000 Gain on sale of equipment 50000 Equipment 250000 Wiese Co. Debit Credit Equipment (Balancing figure) 170000 Accumulated depreciation 140000 Cash 10000 Equipment 300000 When the exchange has commercial substance: Journal entries to be passed: Margot Co. Debit Credit Equipment 190000 Accumulated depreciation 100000 Cash 10000 Gain on sale of equipment 50000 Equipment 250000 Wiese Co. Debit Credit Equipment (Balancing figure) 200000 Accumulated depreciation 140000 Gain on sale of equipment 30000 Cash 10000 Equipment 300000