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Q4. Topdog Company exchanged equipment used in its manufacturing operations plus $3,000 in cash for similar equipment used in the operations of Underdog Company. The
| Q4. Topdog Company exchanged equipment used in its manufacturing operations plus $3,000 in cash for similar equipment used in the operations of Underdog Company. The following information pertains to the exchange. | ||||
| Topdog | Underdog | |||
| Equipment (cost) | $40,000 | $50,000 | ||
| Accumulated depreciation | 30,000 | 30,000 | ||
| Fair value of equipment | 12,000 | 15,000 | ||
| Cash given up | 3,000 | |||
| Instructions: | ||||
| a. | Calculate the gain or loss on exchange for each of the two companies. | |||
| b. | Prepare the journal entries to record the exchange on the books of both companies when the exchange lacks commercial substance. | |||
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Smith and Roberson Business Law
Authors: Richard A. Mann, Barry S. Roberts
15th Edition
1285141903, 1285141903, 9781285141909, 978-0538473637
