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.
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