Question
Derek's Machine Works Ltd. owns a lathe with an original cost of $250,000 and a current book value of $65,000. The company is considering exchanging
Derek's Machine Works Ltd. owns a lathe with an original cost of $250,000 and |
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a current book value of $65,000. The company is considering exchanging or trading-in | ||||||||
their existing machine for more suitable machines owned by Bernie, Tino and |
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Mariano Machine Dealers Co. |
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Information pertaining to the prospective exchanges or trade-in is as follows: |
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| Bernie | Tino | Mariano |
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Cost basis | $ 325,000 | 160,000 |
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Accum. Deprec. | $ 175,000 | 60,000 |
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Fair Value | $ 125,000 | 72,250 |
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List price |
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| $ 275,000 |
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Inventory cost |
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| $ 225,000 |
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Assume these transactions lack "commercial substance"
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Instructions |
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Record the exchange on the books of Derek and Bernie assuming that |
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Derek will pay Bernie $40,000. (Fair value of Derek's machine = $85,000). |
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Record the exchange on the books of Derek and Tino assuming that |
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Tino pays Derek $12,750 |
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Record the purchase/sale on the books of Derek and Mariano assuming that |
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Derek pays Mariano $190,000 |
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