Question

Southern Company owns a building that it leases to others. The building’s fair value is $2,150,000 and its book value is $1,400,000 (original cost of $2,750,000 less accumulated depreciation of $1,350,000). Southern exchanges this for a building owned by the Eastern Company. The building’s book value on Eastern’s books is $1,550,000 (original cost of $2,350,000 less accumulated depreciation of $800,000). Eastern also gives Southern $215,000 to complete the exchange. The exchange has commercial substance for both companies.


Required:

Prepare the journal entries to record the exchange on the books of both Southern and Eastern. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

Explanation:

The journal entries are shown below:

On the books of Southern Company:

Cash A/c Dr $215,000

New Building A/c Dr $1,935,000     ($2,150,000 - $215,000)

Accumulated depreciation A/c Dr $1,350,000

         To Old building A/c $2,750,000

        To Gain A/c $750,000              ($2,150,000 - $1,400,000)

(Being the exchange of asset is recorded)

On the books of Eastern Company:

New Building A/c Dr $2,150,000 ($1,935,000 + $215,000)

Accumulated depreciation A/c Dr $800,000

         To Old building A/c $2,350,000

         To Gain A/c $385,000           ($1,935,000 - $1,550,000)

         To Cash A/c Dr $215,000

(Being the exchange of asset is recorded)