Question 1 Asset Exchanges Required: For each scenario, analyze the transaction to determine appropriate treatment and prepare the journal entry to record the exchange.

Set up your answer for each scenario like this:

There is/is not commercial substance because _____

The value of the asset received should be set up at _____(state book value or fair value and of which asset)

The journal entry to record the exchange is: _____

Scenario A: The Toronto Shipment Company (TSC) acquired a boat in an exchange whereby TSC had given up land and a building. The purchase price of the boat is $1,200,000. The fair value of the land and building together is $1,160,000. The land has an original cost of $400,000 and the building has an original cost of $700,000. The building is 20% depreciated. The boat acquired will allow TSC to operate a new service, transporting light-weight goods across the lake. The boat was available for acquisition by TSC because the original buyer had backed out of the deal. Unfortunately, the seller was unable to sell the boat to another party and the boat remained unsold for 16 months prior to this exchange. After the exchange, TSC had to spend $100,000 to get the boat up and running before it could be used.

Scenario B: Herald Co. owns a truck with a cost of $120,000 and accumulated depreciation of $50,000. The market value of the truck is $90,000. Herald Co. traded in the truck to a dealership and paid $20,000 cash. In exchange, Herald Co. obtained a truck that performs the same services as the old truck but has a different appearance; it is blue which is consistent with the companys colours in its logo. The truck acquired has a list price of $95,000.

Scenario C: Donald T. Co. owns equipment with a cost of $430,000 and accumulated depreciation of $286,000. Donald T. Co. exchanged equipment with another company. The fair value of Donald T Co.s equipment exchanged is estimated at $225,000 and the fair value of the equipment acquired is estimated at $285,000. Donald T. Co. pays $23,000 cash as part of the exchange arrangement. As a result of the exchange, Donald T. will be able to produce more goods, which is expected to drive up sales by 5% annually.