Presented below are two independent situations:
(a) Yount Company exchanged an old machine (cost $150000 less $90000 accumulated depreciation) plus $10000 cash for a new machine. The old machine had a fair value of $54000. Prepare the entry to record the exchange of assets by Yount Company.
(b) Lawson Company trades old equipment (cost $90000 less $54000 accumulated deprecia-tion) for new equipment. Lawson paid $36000 cash in the trade. The old equipment that was traded had a fair value of $54000. Prepare the entry to record the exchange of assets by Lawson Company. The transaction has commercial substance.

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HARMANPREET SINGH · Accepted Answer

Final Answer :  (a) Equipment (new)  ( $ 54 , 000 + $ 10 , 000 )   64 , 000  Accumulated Depreciation-Equipment.  90 , 000 Loss on Disposal of Plant Assets ($60,000 - $54,000)  6 , 000  Machine 150 , 000  Cash 10 , 000 \begin{array}{lrr}  	ext {Equipment (new)   (\$ 54,000+\$ 10,000)    }  & 64,000\ 	ext { Accumulated Depreciation-Equipment. }  & 90,000\ 	ext {Loss on Disposal of Plant Assets (\$60,000 - \$54,000)  }  & 6,000\ 	ext {  Machine}  & & 150,000\ 	ext {  Cash}  & & 10,000\\end{array} Equipment (new)  ( $54 , 000 + $10 , 000 )    Accumulated Depreciation-Equipment.  Loss on Disposal of Plant Assets ($60,000 - $54,000)   Machine  Cash ​ 64 , 000 90 , 000 6 , 000 ​ 150 , 000 10 , 000 ​ (b) Equipment (new)  90 , 000  Accumulated Depreciation-Equipment  54 , 000  Equipment (old)  90 , 000  Cash 36 , 000  Gain on Disposal of Plant Assets  18 , 000 \begin{array}{lrr}  	ext {Equipment (new)  }  & 90,000\ 	ext { Accumulated Depreciation-Equipment }  & 54,000\ 	ext { Equipment (old) }  & & 90,000\ 	ext {  Cash}  & & 36,000\ 	ext { Gain on Disposal of Plant Assets }  & & 18,000\\end{array} Equipment (new)   Accumulated Depreciation-Equipment   Equipment (old)   Cash  Gain on Disposal of Plant Assets  ​ 90 , 000 54 , 000 ​ 90 , 000 36 , 000 18 , 000 ​  Fair value of old equipment  $ 54 , 000  Book value of old equipment  36 , 000 ‾  Gain recognized  $ 18 , 000 ‾ ‾  FV of asset exchanged  $ 54 , 000  Plus: Cash  36 , 000 ‾  Cost of new equipment  $ 90 , 000 ‾ ‾ \begin{array}{ll}	ext { Fair value of old equipment }  &  \$ 54,000 \	ext { Book value of old equipment }  &  \underline{36,000} \	ext { Gain recognized }  & \underline{\underline{ \$ 18,000}} \	ext { FV of asset exchanged }  &  \$ 54,000 \	ext { Plus: Cash }  &  \underline{36,000} \	ext { Cost of new equipment }  &  \underline{\underline{\$ 90,000}}\end{array}  Fair value of old equipment   Book value of old equipment   Gain recognized   FV of asset exchanged   Plus: Cash   Cost of new equipment  ​ $54 , 000 36 , 000 ​ $18 , 000 ​ ​ $54 , 000 36 , 000 ​ $90 , 000 ​ ​ ​

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