On August 1, Monty, Inc. exchanged productive assets with Flounder, Inc. Monty’s

Question

On August 1, Monty, Inc. exchanged productive assets with Flounder, Inc. Monty’s asset is referred to below as “Asset A,” and Flounder’ is referred to as “Asset B.” The following facts pertain to these assets.

Asset A

Asset B

1. Assuming that the exchange of Assets A and B has commercial substance, record the exchange for both Monty, Inc. and Flounder, Inc. in accordance with generally accepted accounting principles

2. Assuming that the exchange of Assets A and B lacks commercial substance, record the exchange for both Monty, Inc. and Flounder, Inc. in accordance with generally accepted accounting principles.

Asset A

Asset B

Original cost $101,760 $116,600 Accumulated depreciation (to date of exchange) 42,400 49,820 Fair value at date of exchange 63,600 79,500 Cash paid by Monty, Inc. 15,900 Cash received by Flounder, Inc. 15,900

Explanation / Answer

1. Assuming that the exchange of Assets A and B has commercial substance, record the exchange for both Monty, Inc. and Flounder, Inc. in accordance with generally accepted accounting principles:
Journal entry:

In the books of

Account title

Debit

Credit

Monty, Inc.

Assets B
Accumulated depreciation- Asset A
     Asset A
     Gain on Disposal (63,600 - (101,760-42,400))
     Cash

79,500
42,400

101,760
4,240
15,900

Flounder, Inc.

Cash
Assets A
Accumulated depreciation- Asset B
     Asset B
     Gain on Disposal (79,500 - (116,600-49,820))  

15,900
63,600
49,820

116,600
12,720

2. Assuming that the exchange of Assets A and B lacks commercial substance, record the exchange for both Monty, Inc. and Flounder, Inc. in accordance with generally accepted accounting principles:

In the books of

Account title

Debit

Credit

Monty, Inc.

Assets B (79,500 - 4,240)
Accumulated depreciation- Asset A
     Asset A
     Cash

75,260
42,400

101,760
15,900

Flounder, Inc.

Cash
Assets A
Accumulated depreciation- Asset B
     Asset B
     Gain on Disposal

15,900
63,600
49,820

116,600
12,720

In the books of

Account title

Debit

Credit

Monty, Inc.

Assets B
Accumulated depreciation- Asset A
     Asset A
     Gain on Disposal (63,600 - (101,760-42,400))
     Cash

79,500
42,400

101,760
4,240
15,900

Flounder, Inc.

Cash
Assets A
Accumulated depreciation- Asset B
     Asset B
     Gain on Disposal (79,500 - (116,600-49,820))  

15,900
63,600
49,820

116,600
12,720

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.