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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
Exchange of Assets Use the same information as in E-12, except that the machine has a market value of $8,500, and, therefore, Goodman agrees to pay $500 to complete the exchange.
Required:
Prepare journal entries for Goodman and Harmes to record the exchange.
Journalize entries to record the exchange for Company G and Company H.
Property, Plant, and Equipment:
Property, Plant, and Equipment refers to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue.
Journal entry:
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Accounting rules for Journal entries:
- To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
- To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains
Prepare journal entry for Company G:
| Date | Account titles and explanation | Debit ($) | Credit ($) |
| Â | Truck (1) | 9,000 | Â |
| Â | Accumulated depreciation for machine (3) | Â 24,000 | Â |
|  |     Gain on exchange  (2) | 2,500 | |
| Â | Â Â Â Â Machine | Â | 30,000 |
| Â | Â Â Â Â Cash | Â | 500 |
| Â | Â (To record the exchange with commercial substance) | Â | Â |
| Â | Â | Â | Â |
Table (1)
- Truck is an asset and it is increased. Therefore, debit truck account by $9,000.
- Accumulated depreciation for machine is a contra asset account and it is decreased. Therefore, debit accumulated depreciation for machine account by $24,000.
- Gain on exchange is a component of stockholders’ equity and it is increased. Therefore, credit gain on exchange account by $2,500.
- Machine is an asset and it is decreased. Therefore, credit machine account by $30,000.
- Cash is an asset and it is decreased. Therefore credit cash account by $500.
Prepare journal entry for Company H:
| Date | Account titles and explanation | Debit ($) | Credit ($) |
| Â | Machine (4) | 8,500 | Â |
| Â | Cash | 500 | Â |
| Â | Accumulated depreciation for truck (5) | Â 4,000 | Â |
|  |     Gain on exchange  (6) |    1,000 | |
| Â | Â Â Â Â Truck | Â | 12,000 |
| Â | Â (To record the exchange with commercial substance) | Â | Â |
| Â | Â | Â | Â |
Table (2)
- Machine is an asset and it is increased. Therefore, debit machine account by $8,500.
- Cash is an asset and it is increased. Therefore debit cash account by $500.
- Accumulated depreciation for truck is a contra asset account and it is decreased. Therefore, debit accumulated depreciation for truck account by 4,000.
- Gain on exchange is a component of stockholders’ equity and it is increased. Therefore, credit the  gain on exchange account by $1,000.
- Truck is an asset and it is decreased. Therefore, credit truck account by $12,000...
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