The production manager of BBB Corporation wants to acquire a different brand of the machine by exchanging
Question:
The production manager of BBB Corporation wants to acquire a different brand of the machine by exchanging the machine that it currently uses in operations for the brand of equipment that others in the industry are using. The brand being used by other companies is more comfortable for the operators because it has different attachments that allow the operators to adjust the controls for a variety of arm and hand positions. The production manager has received the following offers from other companies:
1. | SSS Corp. offered to give BBB a similar machine plus $13,800 in exchange for BBB’s machine. | |
2. | Batman Corp. offered a straight exchange for a similar machine with essentially the same value in use. | |
3. | Shrip Corp. offered to exchange a similar machine with the same value in use but wanted $4,800 cash in addition to BBB’s machine. | |
4. | The production manager has also contacted Ans Corporation, a dealer in machines. To obtain a new machine from Ans, BBB would have to pay $55,800 and also trade in its old machine. |
BBB’s machinery has a cost of $96,000, a net book value of $66,000, and a fair value of $55,200. The following table shows the information needed to record the machine exchange between the companies:
For each of the four independent situations, assume that BBB accepts the offer. Prepare the journal entries to record the exchange on the books of each company. Assume that transactions 2 and 3 lack commercial substance for Batman Company and Shrip Company respectively.
Intermediate Accounting Volume 1
ISBN: 978-1119496496
12th Canadian edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy