Beeman Company exchanged machinery with a fair value of $4,680,000, a recorded cost of $7,200,000 and accumulated depreciation of $3,600,000 with Lacey Corporation for machinery Lacey owns. The machinery that Lacey owns has a fair value of $4,520,000, a recorded cost of $8,640,000, and accumulated depreciation of $4,752,000. Lacey also gave Beeman $160,000 of cash in the exchange. Assume depreciation has already been updated.
Instructions
(a) Prepare the entries on both companies' books assuming that the exchange had commercial substance.
(b) Prepare the entries on both companies' books assuming that the exchange lacked commercial substance

See below

Explanation:

A. Commercial substance

Beeman company

Machinery Dr

$4,520,000

Accumulated depreciationDr $3,600,000

CashDr $160,000

To Gain on disposal of plant assets Cr $1,080,000

To equipment Cr $7,200,000

Lacey Company

Equipment Dr $4,680,000

Accumulated depreciation Dr $4,752,000

To Gain on disposal of equipment Cr $632,000

To equipment Cr $8,640,000

To cash Cr $160,000

B. Lacked commercial substance

Berman company

Equipment Dr $3,476,923

Accumulated depreciation Dr $3,600,000

Cash Dr $160,000

To gain on disposal of equipment Cr $36,923

To equipment Cr $7,200,000

Working

= ($160,000 / ($160,000 + $4,520,000) × $1,080,000

= $36,923

Lacey corporation

Equipment Dr $4,048,000

Accumulated depreciationDr $4,752,000

To equipment Cr $8,640,000

To cash Cr $160,000

Commercial substance

Lacey company

Cost Dr $8,640,000

Accumulated depreciationDr $4,752,000

Book value Dr $3,888,000

Fair value Dr $4,520,000

Gain on disposal Dr $632,000

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