I need help with Option 2 journals. There are other options I have not included.

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Long-Term Asset Acquisition

Bruce and Emmett (B & E) is considering a significant equipment replacement. B & E would like to replace some of their equipment before December 31, 2019. The equipment originally cost $500,000 and the equipments accumulated depreciation balance at the end of 2019 is will be $450,000. At this point the equipment is depreciated to its salvage value.

Your long-term asset accountant, Boris, tells you about four equipment options as follows:

1. construct new equipment and sell the old equipment,
2. exchange the old equipment for new equipment that is more efficient,
3. purchase new equipment that is more efficient and sell the old equipment, or
4. overhaul the old equipment.

The estimated life of any new equipment is 5 years.

All loans would start as of January 1, 2019

B & E would like you to analyze the four options to determine the financial impact of each decision and any non-financial considerations that may result from each decision. Additional information about each option is presented below:

Option 2: Exchange the equipment for a similar piece of equipment with a fair value of $600,000. The fair value of the old equipment is $60,000. B & E can borrow $540,000 on a one-year, 10% note. the balance will be funded with an accounts payable arrangement with the supplier. (Assume the exchange has commercial substance.)

1. Prepare journal entries in general journal form for each of the four options.
2. Write a brief memo on how each option affects the financial statements. Include your journal entry(ies) in the body of your memo for each option. Discuss the strengths and weaknesses of each option.

This is what I have but I'm not confident in it being correct.

Equipment Accumulated Depreciation- Old 600000 534000 Old Equipment Gain on Exchange Cash Account Payable 500000 40000 540000 54000 Cash 540000 One-Year 10% Note Payable 540000