Santana Company exchanged equipment used in its manufacturing operations plus $2

Question

Santana Company exchanged equipment used in its manufacturing operations plus $2,000 in cash for similar equipment used in the operations of Delaware Company. The following information pertains to the exchange:

                                                                        Santana Co.               Delaware Co.

            Equipment (cost)                               $ 28,000                     $ 28,000

            Accumulated Depreciation                   19,000                         20,000

            Fair Value of equipment                      13,500                         15,500

            Cash (paid)/received                              (2,000)                          2,000

Instructions:

Prepare the Journal entries to record the exchange on the books of both companies.Assume that the exchange lacks economic substance

Prepare the Journal entries to record the exchange on the books of both companies.Assume that the exchange has economic substance:

Explanation / Answer

In th books of Santana Co.

In the books of delaware

Particulars Debit Credit Equipment A/C (Delaware) Dr. $15500 Accumulated depreciation A/c Dr.    $19000 To Equipment A/C $28000 To Cash A/c $2000 To profit and loss A/c $4500

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