Question

Crane Corporation wishes to exchange a machine used in its operations. Crane has received the following offers from other companies in the industry.

1.		Cheyenne Company offered to exchange a similar machine plus $32,200. (The exchange has commercial substance for both parties.)
2.		Ayayai Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)
3.		Pina Company offered to exchange a similar machine, but wanted $4,200 in addition to Crane’s machine. (The exchange has commercial substance for both parties.)

In addition, Crane contacted Grouper Corporation, a dealer in machines. To obtain a new machine, Crane must pay $130,200 in addition to trading in its old machine.

		Crane		Cheyenne		Ayayai		Pina		Grouper
Machine cost		$224,000		$168,000		$212,800		$224,000		$182,000
Accumulated depreciation		84,000		63,000		99,400		105,000		–0–
Fair value		128,800		96,600		128,800		133,000		259,000

Answer 1

Requirement 1: Prepare the journal entries in the books of purchaser and seller as follows

In the books of Crane

Date	Account Title and Explanation	Debit	Credit
	Cash	$32,200
	Machinery	$96,600
	Accumulated Depreciation - Machinery	$84,000
	Loss on disposal ($224,000 − $32,200 − 96,600 − $84,000)	$11,200
	Machinery		$224,000
	To record exchange of machinery

In the books of Cheyenne

Date	Account Title and Explanation	Debit	Credit
	Machinery	$128,800
	Accumulated Depreciation - Machinery	$63,000
	Loss on disposal ($168,000 + $32,200 − 128,800 − $63,000)	$8,400
	Cash		$32,200
	Machinery		$168,000
	To record exchange of machinery

Requirement 2: Prepare the journal entries in the books of purchaser and seller as follows

In the books of Crane

Date	Account Title and Explanation	Debit	Credit
	Machinery	$128,800
	Accumulated Depreciation - Machinery	$84,000
	Loss on disposal ($224,000 − $128,800 − $84,000)	$11,200
	Machinery		$224,000
	To record exchange of machinery

In the books of Ayayai

Date	Account Title and Explanation	Debit	Credit
	Machinery ($212,800 − $99,400)	$113,400
	Accumulated Depreciation - Machinery	$99,400
	Machinery		$212,800
	To record exchange of machinery

Requirement 3: Prepare the journal entries in the books of purchaser and seller as follows

In the books of Crane

Date	Account Title and Explanation	Debit	Credit
	Machinery	$133,000
	Accumulated Depreciation - Machinery	$84,000
	Loss on disposal ($224,000 + $4,200 − $133,000 − $84,000)	$11,200
	Cash		$4,200
	Machinery		$224,000
	To record exchange of machinery

In the books of Pina

Date	Account Title and Explanation	Debit	Credit
	Cash	$4,200
	Machinery	$128,800
	Accumulated Depreciation - Machinery	$105,000
	Machinery		$224,000
	Gain on disposal ($224,000 − 128,800 − $105,000 − $4,200 )		$14,000
	To record exchange of machinery

Requirement 4: Prepare the journal entries in the books of purchaser and seller as follows

In the books of Crane

Date	Account Title and Explanation	Debit	Credit
	Machinery	$259,000
	Accumulated Depreciation - Machinery	$84,000
	Loss on disposal ($224,000 + $130,200 − $259,000 − $84,000)	$11,200
	Cash		$130,200
	Machinery		$224,000
	To record exchange of machinery

In the books of Grouper

Date	Account Title and Explanation	Debit	Credit
	Cash	$130,200
	Inventory	$128,800
	Sales Revenue		$259,000
	To record sales revenue
	Cost of Goods Sold	$182,000
	Inventory		$182,000
	To record cost of goods sold