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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
Exchange of Assets Use the same information as in E10-9, except that the warehouse owned by Denver has a fair value of $33,000, and therefore, Bristol agrees to pay Denver $3,000 to complete the exchange.
Required:
Assuming the exchange has commercial substance, prepare journal entries for Denver and Bristol to record the exchange.
Record journal entries for Company D and Company B to record exchange, if exchange has commercial purpose.
Prepare journal entry for Company D:
| Date | Account titles and explanation | Debit ($) | Credit ($) |
| Â | Building (New Warehouse) | 30,000 | Â |
| Â | Accumulated depreciation for building | Â 55,000 | Â |
|  | Loss on exchange (1) |    2,000 | |
| Â | Cash | 3,000 | Â |
| Â | Â Â Â Â Building ( Old Warehouse) | Â | 90,000 |
| Â | Â (To record the exchange without commercial purpose) | Â | Â |
| Â | Â | Â | Â |
Table (1)
- Building (New Warehouse) is an asset and it is increased. Therefore, debit building (New Warehouse) account by $30,000.
- Accumulated depreciation is a contra asset account and it is decreased. Therefore, debit accumulated depreciation account by $55,000.
- Loss on exchange is a component of stockholders’ equity and it is decreased. Therefore, debit loss on exchange account by $2,000.
- Cash is an asset and it is increased. Therefore, debit cash account by $3,000.
- Building (Old Warehouse) is an asset and it is decreased. Therefore, credit building (Old Warehouse) account by $90,000.
Prepare journal entry for Company B:
| Date | Account titles and explanation | Debit ($) | Credit ($) |
| Â | Building (New Warehouse) | 33,000 | Â |
| Â | Accumulated depreciation for building | 25,000 | Â |
| Â | Â Â Â Â Building ( Old Warehouse) | Â | 45,000 |
| Â | Â Â Â Â Cash | Â | 3,000 |
| Â | Â Â Â Â Gain on exchange (2) | Â | 10,000 |
| Â | (To record the exchange without commercial purpose) | Â | Â |
| Â | Â | Â | Â |
Table (2)
- Building (New Warehouse) is an asset and it is increased. Therefore, debit building (New Warehouse) account by $33,000.
- Accumulated depreciation is a contra asset account and it is decreased. Therefore, debit accumulated depreciation account by $25,000.
- Building (Old Warehouse) is an asset and it is decreased. Therefore, credit building (Old Warehouse) account by $45,000.
- Cash is an asset and it is decreased. Therefore, credit cash account by $3,000.
- Gain on exchange is a component of stockholders’ equity and it is increased. Therefore, credit gain on exchange account by $10,000...
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