Question

Kingbird Company exchanged equipment used in its manufacturing operations plus $4,140 in cash for similar equipment used in the operations of Oriole Company. The following information pertains to the exchange. Equipment (cost) Accumulated depreciation Fair value of equipment Cash given up Kingbird Co $38,640 26,220 17,250 4,140 Oriole Co. $38,640 13,800 21,390 Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Kingbird Company: Debit Credit Oriole Company

Answer 1

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Loss is recognized as full in both cases Lack or commercial substance.