Question

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

1.		Carla Company offered to exchange a similar machine plus $34,500. (The exchange has commercial substance for both parties.)
2.		Sarasota Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)
3.		Ivanhoe Company offered to exchange a similar machine, but wanted $4,500 in addition to Buffalo’s machine. (The exchange has commercial substance for both parties.)

In addition, Buffalo contacted Shamrock Corporation, a dealer in machines. To obtain a new machine, Buffalo must pay $139,500 in addition to trading in its old machine.

		Buffalo		Carla		Sarasota		Ivanhoe		Shamrock
Machine cost		$240,000		$180,000		$228,000		$240,000		$195,000
Accumulated depreciation		90,000		67,500		106,500		112,500		–0–
Fair value		138,000		103,500		138,000		142,500		277,500

For each of the four independent situations, prepare the journal entries to record the exchange on the books of each company. (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 0 for the amounts.)

No.	Account Titles and Explanation	Debit	Credit
1.	Buffalo Corporation
	Carla Company
2.	Buffalo Corporation
	Sarasota Company
3.	Buffalo Corporation
	Ivanhoe Company
4.	Buffalo Corporation
	Shamrock Company
	(To record exchange of inventory)
	(To record cost of inventory)

Answer 1

The journal entries are prepared as below:

No.	Account Titles and Explanation	Debit	Credit
1)	Buffalo Corporation
	Cash	$34,500
	Machinery	$103,500
	Accumulated Depreciation	$90,000
	Loss on Exchange of Machinery (240,000 - 90,000 - 138,000)	$12,000
	Machinery		$240,000
	Carla Company
	Machinery	$138,000
	Accumulated Depreciation-Machinery	$67,500
	Loss on Disposal of Machinery (180,000 - 67,500 - 103,500)	$9,000
	Cash		$34,500
	Machinery		$180,000
2)	Buffalo Corporation
	Machinery	$138,000
	Accumulated Depreciation	$90,000
	Loss on Exchange of Machinery (240,000 - 90,000 - 138,000)	$12,000
	Machinery		$240,000
	Sarasota Company
	Machinery	$121,500
	Accumulated Depreciation-Machinery	$106,500
	Machinery		$228,000
3)	Buffalo Corporation
	Machinery	$142,500
	Accumulated Depreciation	$90,000
	Loss on Exchange of Machinery (240,000 - 90,000 - 138,000)	$12,000
	Machinery		$240,000
	Cash		$4,500
	Ivanhoe Company
	Machinery	$138,000
	Accumulated Depreciation-Machinery	$112,500
	Cash	$4,500
	Machinery		$240,000
	Gain on Disposal of Machinery (240,000 - 112,500 - 142,500)		$15,000
4)	Buffalo Corporation
	Machinery	$277,500
	Accumulated Depreciation-Machinery	$90,000
	Loss on Disposal of Machine	$12,000
	Machinery		$240,000
	Cash		$139,500
	(To record Exchange of Inventory)
	Shamrock Company
	Cash	$139,500
	Inventory	$138,000
	Sales Revenue		$277,500
	(To record exchange of inventory)
	Cost of Goods Sold	$195,000
	Inventory		$195,000
	(To record cost of inventory)