Carlos Arruza Company exchanged equipment used in its manufacturing operations plus $3,000 in cash for similar equipment used in the operations of Ton
Carlos Arruza Company exchanged equipment used in its manufacturing operations plus $3,000 in cash for similar equipment used in the operations of Tony LoBianco Company.
\r\nThe following information pertains to the exchange.
\r\nCarlos Arruza Co. Tony LoBianco Co.
\r\nEquipment (cost) $28,000 $28,000
\r\nAccumulated depreciation 19,000 10,000
\r\nFair value of equipment 12,500 15,500
\r\nCash given up 3,000
\r\nInstructions
\r\n(a) Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance.
\r\n(b) Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange has commercial substance.