Chapter 10 Acquisition and Disposition of Property Plant and

Chapter 10 Acquisition and Disposition of Property, Plant and Equipment

Samuel Company exchanged land and cash of $6,500 for equipment. The land had a book value of $45,000 and a fair value of $34,000.

(a) Prepare the journal entry to record the exchange, assuming this transaction has commercial substance.

(b) Prepare the journal entry to record the exchange, assuming this transaction lacks commercial substance.

Solution

(a) Journal entry to record the exchange, when transaction has Commercial subbstance where land recorded at fair value

Debit Equipment by $40,500

Credit Land by $34,000

Credit Cash $6,000

(b) Journal entry to record the exchange, when transaction lacks Commercial subbstance where land recorded at Book value

Debit Equipment by $51,000

Credit Land by $45,000

Credit Cash $6,000