Question

Ricardo Heavy Hauling has some earth- moving equipment that cost $ 432,000; accumulated amortization is $ 288,000. Ricardo traded equipment with another construction company. The fair value of Ricardo’s old equipment is estimated to be $ 225,000, and the fair value of the equipment being acquired is estimated to be $ 285,000. Four different possible scenarios are presented below:
a. The new equipment will perform essentially the same tasks as the old equipment. The estimate of the fair value of the new equipment is the more reliable of the two estimates. The exchange is a straight swap and no cash changes hands.
b. The new equipment has very different functions than the old equipment. The new equipment will permit Ricardo to attract new business that it had previously been unable to obtain. The fair value estimate of the new equipment is the more reliable of the two estimates. The exchange is a straight swap and no cash changes hands.
c. In addition to exchanging its old equipment, Ricardo pays $ 24,000 cash. The characteristics of Ricardo’s operating cash lows will change as a result of the exchange. The fair value of the old equipment is the more reliable estimate.
d. Assume the same facts as in (c) above, except that the exchange will not significantly alter Ricardo’s cash lows.

Required:
For each scenario, prepare the journal entry to record the exchange.



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  • CreatedFebruary 17, 2015
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