Question

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

1.		Shamrock Company offered to exchange a similar machine plus $25,760. (The exchange has commercial substance for both parties.)
2.		Bridgeport Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)
3.		Indigo Company offered to exchange a similar machine, but wanted $3,360 in addition to Ivanhoe’s machine. (The exchange has commercial substance for both parties.)

In addition, Ivanhoe contacted Sweet Corporation, a dealer in machines. To obtain a new machine, Ivanhoe must pay $104,160 in addition to trading in its old machine.

		Ivanhoe		Shamrock		Bridgeport		Indigo		Sweet
Machine cost		$179,200		$134,400		$170,240		$179,200		$145,600
Accumulated depreciation		67,200		50,400		79,520		84,000		–0–
Fair value		103,040		77,280		103,040		106,400		207,200

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.)

1.) Ivanhoe corp DR CR

-

-

-

-

-

Shamrock Corp DR CR

-

-

-

-

-

2.) Ivanhoe Corp DR CR

-

-

-

-

Brigeport Corp DR CR

-

-

-

3.) Ivanhoe Corp DR CR

-

-

-

-

-

Indigo Corp DR CR
-

-

-

-

-

4.) Ivanhoe Corp DR CR

-

-

-

-

-

Sweet Corp DR CR

-

-

-

To record exchange of inventory

-

-

To record cost of Inventory

Answer 1

1) Shamrock Company offered to exchange the similar Machine Machine Cost (a) Accumulated Depreciation (b) Book Value = (a-b) Fair Value (d) Ivanhoe 179,200 67,200 112,000 103,040 Shamrock 134,400 50,400 84,000 77,280 Gain/(Loss) on disposal (d-c) (8,960) | (6,720) Debit Credit Accounting Entries Account titles and explanation 1. Ivanhoe Corporation Cash Machinery Accumulated Depreciation Loss on disposal of assets Machinery 25,760 77,280 67,200 8,960 179,200 Shamrock Company Machinery Accumulated Depreciation Loss on disposal of assets Machinery 103,040 50,400 6,720 Cash 134,400 25,760

2) Bridgeport Company offered to exchange the similar Machine Machine Cost (a) Accumulated Depreciation (b) Book Value = (a-b) Fair Value (d) Ivanhoe Bridgeport 179,200 170,240 67,200 79,520 112,000 90,720 103,040 103,040 Gain/(Loss) on disposal (d-c) (8,960) 12,320 Debit Credit Account titles and explanation 2. Ivanhoe Corporation Machinery Accumulated Depreciation Loss on disposal of assets Machinery 103,040 67,200 8,960 179,200 Bridgeport Company Machinery Accumulated Depreciation Machinery 90,720 79,520 170,240 Notes: in Case of lack of commerical substance the gain on disposal off assets will set off against the cost of new assets Fair value of new assets = 103,040, Gain on disposal = 12,320 Cost of new assets for Bridgeport (103,040 - 12,320) = 90,720

3) Indigo Company offered to exchange the similar Machine Ivanhoe Machine Cost (a) Accumulated Depreciation (b) Book Value = (a-b) Fair Value (d) 67,200 112,000 103,040 Indigo 179,200 84,000 95,200 106,400 Gain/(Loss) on disposal (d-c) (8,960) 11,200 Debit Credit Account titles and explanation 3. Ivanhoe Corporation Machinery Accumulated Depreciation Loss on disposal of assets Machinery Cash 106,400 67,200 8,960 179,200 3,360 Indigo Company Machinery Accumulated Depreciation Cash Machinery Gain on disposal of assets 103,040 84,000 3,360 179,200 11,200

4) Sweet Company Sweet 145,600 Machine Cost (a) Accumulated Depreciation (b) Book Value = (a-b) Fair Value (d) Ivanhoe 179,200 67,200 112,000 103,040 145,600 207,200 Gain/(Loss) on disposal (d-c) (8,960) Debit Credit Account titles and explanation 4. Ivanhoe Corporation Machinery Accumulated Depreciation Loss on disposal of assets Machinery Cash 207,200 67,200 8,960 179,200 104,160 Sweet Company Inventory Cash Sales revenue (to record exchange) 103,040 104,160 207,200 145,600 Cost of goods sold Inventory (to record cost of goods sold) 145,600 Note: Sweet is a machine dealer that's why machine is treated as stock item for him