Question

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

1. Skysong Company offered to exchange a similar machine plus $25,300. (The exchange has commercial substance for both parties.)
2. Concord Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.)
3. Marigold Company offered to exchange a similar machine, but wanted $3,300 in addition to Sheridanâs machine. (The exchange has commercial substance for both parties.)

In addition, Sheridan contacted Swifty Corporation, a dealer in machines. To obtain a new machine, Sheridan must pay $102,300 in addition to trading in its old machine.

Sheridan Skysong Concord Marigold Swifty
Machine cost $176,000 $132,000 $167,200 $176,000 $143,000
Accumulated depreciation 66,000 49,500 78,100 82,500 â0â
Fair value 101,200 75,900 101,200 104,500 203,500

Required:
For each of the four independent situations, prepare the journal entries to record the exchange on the books of each company

Answer 1

Answer:

1. In the books of SHERIDAN

Dr Cash $25,300

Dr Machinery $75,900

Dr Accumulated Depreciation - Machinery $66,000

Dr Loss on disposal $8,800

Cr Machinery $176,000

In the books of SKYSONG

Dr Machinery $101,200

Dr Accumulated Depreciation - Machinery $49,500

Dr Loss on disposal $6,600

Cr Cash $25,300

Cr Machinery $132,000

2. In the books of SHERIDAN

Dr Machinery $101,200

Dr Accumulated Depreciation - Machinery $66,000

Dr Loss on disposal $8,800

Cr Machinery $176,000

In the books of CONCORD

Dr Machinery $89,100

Dr Accumulated Depreciation - Machinery $78,100

Cr Machinery $167,200

3. In the books of SHERIDAN

Dr Machinery 104,500

Dr Accumulated Depreciation - Machinery $66,000

Dr Loss on disposal $8,800

Cr Cash $3,300

Cr Machinery $176,000

In the books of MARIGOLD

Dr Cash $3,300

Dr Machinery $101,200

Dr Accumulated Depreciation - Machinery $82,500

Cr Machinery $176,000

Cr Gain on disposal $11,000

4.In the books of SHERIDAN

Dr Machinery $203,500

Dr Accumulated Depreciation - Machinery $66,000

Dr Loss on disposal $8,800

Cr Cash $102,300

Cr Machinery $176,000

In the books of SWIFTY

Dr Cash $102,300

Dr Inventory $101,200

Cr Sales Revenue $203,500

Dr Cost of Goods Sold $143,000

Cr Inventory $143,000

Explanation:

Preparation of the journal entries to record the exchange on the books of each company

1.Preparation of the journal entries in the books of purchaser and seller as follows

In the books of SHERIDAN

Dr Cash $25,300

Dr Machinery $75,900

Dr Accumulated Depreciation - Machinery $66,000

Dr Loss on disposal ($176,000 − $25,300 − 75,900 − 66,000) $8,800

Cr Machinery $176,000

(To record exchange of machinery)

In the books of SKYSONG

Dr Machinery $101,200

Dr Accumulated Depreciation - Machinery $49,500

Dr Loss on disposal ($132,000 + $25,300 − 101,200 − 49,500) $6,600

Cr Cash $25,300

Cr Machinery $132,000

(To record exchange of machinery)

2. Preparation of the journal entries in the books of purchaser and seller

In the books of SHERIDAN

Dr Machinery $101,200

Dr Accumulated Depreciation - Machinery $66,000

Dr Loss on disposal ($176,000 − $101,200 − $66,000) $8,800

Cr Machinery $176,000

(To record exchange of machinery)

In the books of CONCORD

Dr Machinery ($167,200 − $78,100) $89,100

Dr Accumulated Depreciation - Machinery $78,100

Cr Machinery $167,200

(To record exchange of machinery)

3. Preparation of the journal entries in the books of purchaser and seller

In the books of SHERIDAN

Dr Machinery 104,500

Dr Accumulated Depreciation - Machinery $66,000

Dr Loss on disposal ($176,000 + $3,300 − $104,500 − $66,000) $8,800

Cr Cash $3,300

Cr Machinery $176,000

(To record exchange of machinery)

In the books of MARIGOLD

Dr Cash $3,300

Dr Machinery $101,200

Dr Accumulated Depreciation - Machinery $82,500

Cr Machinery $176,000

Cr Gain on disposal ($176,000 − 101,200 − 82,500 − $3,300 ) $11,000

(To record exchange of machinery)

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

In the books of SHERIDAN

Dr Machinery $203,500

Dr Accumulated Depreciation - Machinery $66,000

Dr Loss on disposal ($176,000 + $102,300 − $203,500 − $66,000) $8,800

Cr Cash $102,300

Cr Machinery $176,000

(To record exchange of machinery)

In the books of SWIFTY

Dr Cash $102,300

Dr Inventory $101,200

Cr Sales Revenue $203,500

(To record sales revenue)

Dr Cost of Goods Sold $143,000

Cr Inventory $143,000

(To record cost of goods sold)