Asset Classified as Held for Sale
On July 1, 2011, Haas Company has a building that cost $100,000 and accumulated
depreciation of $35,000. Haas commits to plans to sell the building by March 1, 2011. On July 1, 2011, the building has an estimated fair value of $40,000 and it is estimated that the selling
costs will be $3,000.
Asset Classified as Held for Sale
Building—Held for Sale 37,000 Loss on Held-for-Sale Classification 28,000 Accumulated Depreciation—Building 35,000
Building 100,000
The following entry would be made on July 1:
Asset Classified as Held for Sale
If the net realizable value had been greater than the book value of $65,000 ($100,000 − $35,000), no journal entry would have been made.
Building—Held for Sale 18,000 Gain on Recovery Value—Held for
Sale 18,000
($58,000 – $3,000) – $37,000
Asset Classified as Held for Sale
On December 31, 2011, the estimated selling price was $58,000 (with $3,000 estimated selling costs), the following journal entry would be necessary:
When an operating asset is acquired in
exchange for another nonmonetary asset, the new asset acquired is generally recorded at its fair market value or the fair value of the
nonmonetary asset given in exchange.
Asset Retirement by Exchange for Other Nonmonetary Assets
A machine that cost $83,600 and has accumulated depreciation of $54,780 is
exchanged for delivery equipment that has a fair market value of $43,600.
Delivery Equipment 43,600
Accumulated Depreciation—Machinery 54,780 Machinery
83,600
Gain on Exchange of Machinery
Asset Retirement by Exchange for Other Nonmonetary Assets
Asset Retirement by Exchange for Other Nonmonetary Assets
Assume the delivery equipment’s fair market value is not determinable, but the machinery has a market value of $25,000.
Delivery Equipment 25,000
Accumulated Depreciation—Machinery 54,780 Loss on Exchange of Machinery 3,820
Machinery
Assume the delivery equipment’s fair market
value is not determinable, but the machinery has a market value of $25,000. In addition to the
delivery equipment, cash of $3,000 was received.
Cash 3,000
Delivery Equipment 22,000
Accumulated Depreciation—Machinery 54,780 Loss on Exchange of Machinery 3,820
Machinery
83,600 Fair market value
Asset Retirement by Exchange for Other Nonmonetary Assets
Nonmonetary Exchange without Commercial Substance
Example 1—No Cash Involved Example 1—No Cash Involved Example 1—No Cash Involved Example 1—No Cash Involved
Republic Manufacturing Company owns a molding machine that it decided to exchange for a machine owned by Logan Square Company. The following cost and market data relate to the two machines:
Nonmonetary Exchange without Commercial Substance
The entry on Republic’s books to record the exchange will be:
Machinery (new) 14,000
Accumulated Depreciation—Machinery (old) 32,000 Machinery
46,000
The entry on Logan’s books to record the exchange will be:
Machinery (new) 16,000
Accumulated Depreciation—Machinery (old) 37,700
Loss on Exchange of Machinery 300
Example 1—No Cash Involved Example 1—No Cash Involved Example 1—No Cash Involved Example 1—No Cash Involved
Nonmonetary Exchange without Commercial Substance
Example 2—Small Amount of Cash Involved Example 2—Small Amount of Cash Involved Example 2—Small Amount of Cash Involved Example 2—Small Amount of Cash Involved
Assume the same facts as Example 1, except that it is agreed that Republic’s machine has a market value of
$16,000 and Logan’s machine is worth $17,000.
Republic pays Logan $1,000 cash.
Nonmonetary Exchange without Commercial Substance
The entry on Republic’s books to record the exchange will be:
Machinery (new) 15,000
Accumulated Depreciation—Machinery (old) 32,000 Machinery
46,000
Cash
1,000
The entry on Logan’s books to record the exchange will be:
Cash 1,000
Machinery (new) 15,300
Accumulated Depreciation—Machinery (old) 37,700
Example 2—Small Amount of Cash Involved Example 2—Small Amount of Cash Involved Example 2—Small Amount of Cash Involved Example 2—Small Amount of Cash Involved
Nonmonetary Exchange without Commercial Substance
Example 3—Large Amount of Cash Involved Example 3—Large Amount of Cash Involved Example 3—Large Amount of Cash Involved Example 3—Large Amount of Cash Involved
Assume the same facts as in Example 1, except that it is agreed that Republic’s machine has a market value of $12,750 and Logan’s machine is worth $17,000.
Republic pays Logan $4,250 cash.
Nonmonetary Exchange without Commercial Substance
The entry on Republic’s books to record the exchange will be:
Machinery (new) 17,000
Accumulated Depreciation—Machinery (old) 32,000
Loss on Exchange of Machinery 1,250
Machinery 46,000
Cash 4,250
Example 3—Large Amount of Cash Involved Example 3—Large Amount of Cash Involved Example 3—Large Amount of Cash Involved Example 3—Large Amount of Cash Involved
The entry on Logan’s books to record the exchange:
Cash 4,250
Machinery (new) 12,750
Accumulated Depreciation—Machinery (old) 37,700 Machinery (old
54,000
Gain on Exchange of Machinery 700
Nonmonetary Exchange without Commercial Substance
How much cash constitutes an amount large enough How much cash constitutes an amount large enough to require the approach used in Example 3? The
to require the approach used in Example 3? The Example 3—Large Amount of Cash Involved Example 3—Large Amount of Cash Involved Example 3—Large Amount of Cash Involved Example 3—Large Amount of Cash Involved