Problem 10-8 Vaughn Corporation wishes to exchange a machine used in its operati

Question

Problem 10-8

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

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

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.)

List of Accounts

Accounts Payable
Accumulated Depreciation-Building
Accumulated Depreciation-Equipment
Accumulated Depreciation-Machinery
Accumulated Depreciation-Trucks
Buildings
Cash
Common Stock
Contribution Revenue
Cost of Goods Sold
Depreciation Expense
Direct Labor
Discount on Notes Payable
Equipment
Factory Overhead
Gain on Disposal of Buildings
Gain on Disposal of Equipment
Gain on Disposal of Machinery
Gain on Disposal of Trucks
Insurance Expense
Interest Expense
Inventory
Land
Land Improvements
Loss on Disposal of Buildings
Loss on Disposal of Equipment
Loss on Disposal of Machinery
Loss on Disposal of Trucks
Machinery
Maintenance and Repairs Expense
Materials
No Entry
Notes Payable
Organization Expense
Paid-in Capital in Excess of Par - Common Stock
Prepaid Insurance
Retained Earnings
Salaries and Wages Expense
Sales Revenue
Trading Securities
Trucks

1. Bramble Company offered to exchange a similar machine plus $25,300. (The exchange has commercial substance for both parties.) 2. Sunland Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.) 3. Coronado Company offered to exchange a similar machine, but wanted $3,300 in addition to Vaughn’s machine. (The exchange has commercial substance for both parties.)

Explanation / Answer

Situation 1:

Book value = machine cost - accumulated depreciation

Journal entry in books of Vaughn:

Journal entry in books of Bramble:

Situation 2:

  Journal entry in books of Vaughn:

Journal entry in the books of Sunland:

Situation 3:

Journal entry in books of Vaughn:

Journal entry in the books of Cornado:

Situation 4:

  Journal entry in books of Vaughn:

Journal entry in books of Whispering Company:

Vaughn Bramble Book value of machinery $110,000 $82,500 Fair value $101,200 $75,900 Gain/(loss) on disposal of machinery ($8,800) ($6,600)

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