In 2020, GBC Construction Ltd. traded in two relatively new small milling machines (milling machines no....

  

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In 2020, GBC Construction Ltd. traded in two relatively new small milling machines (milling machines no. MM 6 and MM 7) for a larger milling machine that GBC expects will be more useful for the particular contracts that the company has to fulfill over the next couple of years. The new milling machine was acquired from Humber Manufacturing Inc., which has agreed to take the smaller equipment as trade-ins and also pay $17,500 cash to GBC. The new milling machine cost Humber $165,000 to manufacture and is classified as inventory. The following information is available: GBC Humber Cost of milling machine#MM 6 $120,000 Cost of milling machine#MM 7 110,000 Accumulated depreciation, #MM 6 15,000 Accumulated depreciation, #MM 7 18,000 Fair value, #MM 6 128,000 Fair value, #MM 7 87,500 Fair value of new crane $198,000 Cash paid 17,500 Cash received 17,500 Instructions 16 marks a. Assume that this exchange has commercial substance. Prepare the journal entries on the books of (1) GBC Construction and (2) Humber Manufacturing. Humber uses a perpetual inventory system. b. Assume that this exchange lacks commercial substance. Prepare the journal entries on the books of (1) GBC Construction and (2) Humber Manufacturing. Humber uses a perpetual inventory system. In 2020, GBC Construction Ltd. traded in two relatively new small milling machines (milling machines no. MM 6 and MM 7) for a larger milling machine that GBC expects will be more useful for the particular contracts that the company has to fulfill over the next couple of years. The new milling machine was acquired from Humber Manufacturing Inc., which has agreed to take the smaller equipment as trade-ins and also pay $17,500 cash to GBC. The new milling machine cost Humber $165,000 to manufacture and is classified as inventory. The following information is available: GBC Humber Cost of milling machine#MM 6 $120,000 Cost of milling machine#MM 7 110,000 Accumulated depreciation, #MM 6 15,000 Accumulated depreciation, #MM 7 18,000 Fair value, #MM 6 128,000 Fair value, #MM 7 87,500 Fair value of new crane $198,000 Cash paid 17,500 Cash received 17,500 Instructions 16 marks a. Assume that this exchange has commercial substance. Prepare the journal entries on the books of (1) GBC Construction and (2) Humber Manufacturing. Humber uses a perpetual inventory system. b. Assume that this exchange lacks commercial substance. Prepare the journal entries on the books of (1) GBC Construction and (2) Humber Manufacturing. Humber uses a perpetual inventory system.

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a b A financial contract is consi... View the full answer