Property, Plant, and Equipment:
Property, Plant, and Equipment refers to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue.
To Prepare: The
Explanation of Solution
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Cash | 140,000 | |||
New Building | 1,260,000 | |||
1,200,000 | ||||
Old Building | 2,000,000 | |||
Gain on exchange of assets | 600,000 | |||
(To record the exchange on the books of R Company.) |
Table (1)
Working note:
Determine the value of new building.
Determine the gain on exchange of assets.
- Cash is an asset account, and increased. Therefore, debit Cash account with $140,000.
- New Building increases the asset account. Hence, debit New Equipment account with $1,260,000.
- Accumulated depreciation – old asset is a contra asset. It increases the value of asset account. Therefore, debit Accumulated Depreciation with $1,200,000.
- Old Building is an asset account, and decreased. Therefore, credit Old Equipment account with $2,000,000.
- Gain on sale of exchange of assets increases the equity by $10,000. Hence, credit Gain on sale of exchange of assets with $600,000.
Prepare the journal entries to record the exchange on the books of Company E.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
New Building | 1,400,000 | |||
Accumulated depreciation – Old Building | 650,000 | |||
Cash | 140,000 | |||
Old Building | 1,600,000 | |||
Gain on exchange of buildings | 310,000 | |||
(To record the exchange on the books of P Company.) |
Table (2)
Working note:
Determine the value of new building.
Determine the gain on exchange of buildings.
- New Building increases the asset account. Hence, debit New Equipment account with $1,400,000.
- Accumulated depreciation – old asset is a contra asset. It increases the value of asset account. Therefore, debit Accumulated Depreciation with $650,000.
- Cash is an asset account and decreased. Therefore, credit Cash account with $140,000.
- Old Building is an asset account, and decreased. Therefore, credit Old Equipment account with $1,600,000.
- Gain on exchange of buildings increases the equity by $310,000. Hence, credit Gain on exchange of buildings with $310,000.
Want to see more full solutions like this?
Chapter 10 Solutions
INTERMEDIATE ACCT.-CONNECT PLUS ACCESS
- 51. Love Inc. and Life Co. have an exchange with no commercial substance. The asset given up by Love Inc. has a book value of P12,000. The asset given up by Life Co. has a book value of P20,000. Cash of P4,000 is received by Life Co. What amount should Love Inc. record for the asset received?arrow_forwardKk.194. Jeff owns a new company that is considering either leasing or buying a $100,000 piece of equipment. The lease-buy analysis indicates that buying is better than leasing in Jeff's situation. What factors other than those considered in the lease-buy analysis might lead Jeff to lease rather than buy, in contradiction to the analysis results?arrow_forward26. Love Inc. and Life Co. have an exchange with no commercial substance. The asset given up by Love Inc. has a book value of P12,000. The asset given up by Life Co. has a book value of P20,000. Cash of P4,000 is received by Life Co. What amount should Love Inc. record for the asset received? CHOICES: P20,000 P23,000 P19,000 P16,000arrow_forward
- E10-10 Exchange of Assets Use the same information as in E10-9, except that the warehouse owned by Denver has a fair value of $28,000, and therefore, Denver agrees to pay Bristol $2,000 to complete the exchange. Required: Assuming the exchange has commercial substance, prepare journal entries for Denver and Bristol to record the exchange.arrow_forwardQuestion 25 B's basis in the property received is m $10,000 m $20,000 m $30,000 m None of these_ Question 26 Z Co.'s recognized gain or loss on the distribution to A is m None of these_ m S35.000 capital gain m $<40,000> ordinary loss m 0 Question 27 Z Co.'s recognized gain or loss On the distribution to B is m None of these_ m $2O,0OO capital gain m $10,000 capital gain m 0 Question 28 Z Co.'s recognized gain or loss on the distribution to C is $70,000 capital gain None of these_ $20,000 capital gain $40,000 gain Question 29 Z Co.'s recognized gain or loss on the distribution to D is m <$1,600> capital loss m 0 m <$400> capital loss m None of thesearrow_forwardP10.1 (LO 1 ) (Classification of Acquisition and Other Asset Costs) At December 31, 2019, certain accounts included in the property, plant, and equipment section of Reagan Company's balance sheet had the following balances. Land $230,000 Buildings 890,000 Leasehold improvements 660,000 Equipment 875,000 During 2020, the following transactions occurred. 1.Land site number 621 was acquired for $850,000. In addition, to acquire the land Reagan paid a $51,000 commission to a real estate agent. Costs of $35,000 were incurred to clear the land. During the course of clearing the land, timber and gravel were recovered and sold for $13,000. 2.A second tract of land (site number 622) with a building was acquired for $420,000. The closing statement indicated that the land value was $300,000 and the building value was $120,000. Shortly after acquisition, the building was demolished at a cost of $41,000. A new building was constructed for $330,000 plus the…arrow_forward
- 121. ABC Co purchased a masthead for $10,000. A 5% discount is available on the purchase. On acquisition date, the exchange rate is P46:$1. Installation and testing costs were P25,000. How much is the cost of the masthead? 485,000 462,000 460,000 435,00arrow_forward18 Fair value less cost to sell: P650,000 Value in use:P750,000 Carrying amount:P1,010,000 Compute the impairment loss Group of answer choices P160,000 P100,000 P260,000 P360,000arrow_forwardProblem 13NOREEN INC, a truck dealer, sells a truck on January 1, 2019, to MENDOZA INC for P3,000,000. NOREEN agrees to repurchase the truck on December 31, 2020 for P3,630,000. How much should NOREEN INC record interest and retirement of its liability to MENDOZAINC on December 31, 2020?None C. 330,000; 3,630,000 300,000; 3,600,000 D. 630,000; 3,630,000arrow_forward
- 20 If net assets in fair value for company B is 450000 JD, what price should company A pay to achieve bargain gain of 25000 JD. Select one: a. 430000 b. 435000 c. 425000 d. 420000arrow_forward(LO.2, 3 Federal Taxation) Orange Corporation acquired new office furniture on August 15, 2020, for $130,000. Orange does not elect immediate expensing under section 179. Orange claims any available additional first-year depreciation. Determine Orange’s cost recovery for 2020. How would your answer change if Orange decided to use $52,000 of bonus depreciation and use normal MACRS on the balance of the acquisition cost?arrow_forwardProblem 12 On January 1, GEN enters into a contract with LORD for the sale of a high-end security scanner for P630,000. The contract includes a put option the obliges GEN to repurchase the scanner machine from LORD for P567,000 on or before December 31. The market value is expected to be P495,000 on December 31. LORD pays GEN P630,000 on January 1. The transaction should be accounted for as a: A. Sale C. No sale/lease B. Lease D. Cannot be determined Problem 13 Noreen INC a truck dealer, sells a truck on January 1, 2019, to Mendoza for P3,000,000. Noreen INC agrees to repurchase the truck on December 31, 2020 for P3,630,000. 1. Assuming a 10% is imputed in the agreement, how much is the liability of Tom Co on January 1, 2019? A. 1,500,000 C. 3,000,000 B. 1,815,000 D. 3,630,000 2. Using the information above, what is the interest expense for 2019? A. None C. 330,000 B. 300,000 D. 630,000 3. How much should NOREEN INC record interest and retirement of its liability to MENDOZA INC…arrow_forward
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT