EXERCISE 10-18 (Continued)

(b)

Exchange lacks commercial substance

:

Depreciation Expense

......................................................

700

Accumulated Depreciation—Equipment

...............

700

Equipment (melter)

...........................................................

15,200**

Accumulated Depreciation—Equipment

........................

7,000

Gain on Disposal of Equipment

.............................

1,000

Equipment

................................................................

11,200

Cash

..........................................................................

10,000

**Cash paid

$10,000

Fair value of old asset

5,200

Cost of new asset

$15,200

Note that the entries are the same for both (a) and (b). Gain is not deferred

because cash boot is greater than 25% of the total amount given up, which

makes the transaction monetary in nature.

LO: 4, Bloom: AP, Difficulty: Moderate, Time: 20-25, AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None

Copyright © 2016 John Wiley & Sons, Inc.

Kieso,

Intermediate Accounting,

16/e, Solutions Manual

(For Instructor Use Only)

10-7

EXERCISE 10-19 (15–20 minutes)

(a)

Exchange lacks commercial substance.

Carlos Arruza Company

:

Equipment

12,000

Accumulated Depreciation—Equipment

19,000

Equipment

28,000

Cash

3,000

Valuation of equipment

Book value of equipment given up

$

9,000

Fair value of boot given up

3,000

New equipment

$12,000

OR

Fair value received

$15,500

Less: Gain deferred

3,500

*

New equipment

$12,000

*Fair value of old equipment

$12,500

Less: Book value of old equipment

9,000

Gain on disposal

$

3,500

Note:

Cash paid is less than 25% of the total amount given up, the

transaction is nonmonetary, so the gain is deferred.

Tony Lo Bianco Company

:

Cash

...................................................................................

3,000

Equipment

.........................................................................

12,500

Accumulated Depreciation—Equipment

........................

10,000

Loss on Disposal of Equipment

......................................

2,500*

Equipment

................................................................

28,000

*Computation of loss:

Book value of old equipment

$18,000

Less: Fair value of old equipment

15,500

Loss on disposal of equipment

$

2,500

10-8

Copyright © 2016 John Wiley & Sons, Inc.

Kieso,

Intermediate Accounting,

16/e, Solutions Manual

(For Instructor Use Only)