Question
Exercise 6: Exchanges of Nonmonetary Assets, Including Boot (Cash) Welch Company owns a machine used in their operations. The machine cost $75,000 and has accumulated
Exercise 6: Exchanges of Nonmonetary Assets, Including Boot (Cash)
Welch Company owns a machine used in their operations. The machine cost $75,000 and has accumulated depreciation of $30,000. Welch would like to purchase a newer machine to replace the existing machine. The machine owned by Welch has a fair (market) value of $55,000.
Based on the information given above, what would be the gain if able to dispose the used machine at fair value?
Required: Record the journal entry for the disposal of the old machine under each of the following scenarios.
Scenario 1 Cash Sale: Welch sells the old machine to a competitor for $60,000 cash. The company would then purchase a new machine from a dealer in a separate transaction.
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Option 2 Exchange with commercial substance and boot (cash) paid: Welch exchanges with another company the used machine for a newer machine. The newer machine has a fair value of $70,000. Welch also pays $15,000 in cash as part of the exchange. Assume the exchange has commercial substance.
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