Vaughn Company exchanged equipment used in its manufacturing operations plus $4,020 in cash for similar equipment used in the operations of Bramble Company. The following information pertains to the exchange.
Vaughn Co. Bramble Co.
Equipment (cost) $37,520 $37,520
Accumulated depreciation 25,460 13,400
Fair value of equipment 16,750 20,770
Cash given up 4,020
Required:
(a) Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance.

Answer and Explanation:

The journal entries are shown below:

For Vaughn:

Equipment $16,080

Accumulated Depreciation$25,460

             To Equipment  $37,520

              To Cash           $4,020

(Being the exchange is recorded)

For Bramble:

Equipment(new)  $16,750

Accumulated Depreciation$13,400

Cash   $4,020

Loss on exchange(balance item)  $3,350

         To Equipment(old)  $37,520

(Being the exchange is recorded)

Only these entries are passed and it attains lacking of commercial substance

step 1: create a plan

step 2: inventory facility equipment/assets

step 3: create preventive maintenance procedures

step 4: create preventive maintenance schedules

step 5: train your maintenanceteam

step 6: analyze – adjust - improve

or

step 1 – pm procedure design: doing the effective things

step 2 – pm procedure scheduling: efficient use of people and resources

step 3 – pm lubrication engineering

step 4 – pm training: back on the chain gang

step 5 – pm program management plan

step 6 – communicate, communicate, communicate

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