Intermediate Accounting I

Chalipin Corp had equipment with a cost of $170,000, accumulated depreciation of $55,000 and fair market value of $140,000. Rather than selling this equipment and buying the equipment it needed, Chalipin found a trading partner which had the needed equipment and was willing to exchange its equipment for the equipment Chalipin no longer needed. The new equipment which Chalipin would receive in the exchange had a fair market value of $120,000. Since this was less than the value of the equipment it would give up, Chalipin demanded an additional payment of cash which its trading partner agreed to pay.

INSTRUCTIONS

A: Prepare a journal entry on the books of Chalipin to record the exchange, assuming it has commercial substance.

B: Prepare a journal entry on the books of Chalipin to record the exchange, assuming it lacks commercial substance.