Question

Buffalo Corporation exchanged equipment used in its manufacturing operations for equipment used in the operations of Carla Ltd. The following information pertains to the exchange: Buffalo Corp. Carla Ltd. $84,900 $84,900 Equipment (cost) Accumulated depreciation 46,900 40,900 Fair value of old equipment 42,000 42,600 Cash given up 600 Both companies agreed that the exchange did not have commercial substance. Prepare the necessary journal entries to record the asset exchange on the books of both companies. (Credit account titles are automatically indented when the 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.) Buffalo Corporation:

Answer 1

Cost of new equipment in hands of Buffalo company is  

Cost of new equipment = Carrying value of machine exchanged + cash = [(84,900 - 46,900) + 600] = $38,600

In books of Buffalo company.

S.No	Account details and explanation	Debit	Credit
	Equipment (New)	$38,600
	Accumulated Depreciation	$46,900
	Equipment (old)		$84,900
	Cash		$600

In books of Carla Ltd.

S.No	Account details and explanation	Debit	Credit
	Equipment (New)	$42,000
	Accumulated Depreciation	$40,900
	Cash	$600
	Loss on exchange	$1,500
	equipment (old)		84,900