Question
The production manager of Chesley Corporation wants to acquire a different brand of machine by exchanging the machine that it currently uses in operations for
The production manager of Chesley Corporation wants to acquire a different brand of machine by exchanging the machine that it currently uses in operations for the brand of equipment that others in the industry are using. The brand being used by other companies is more comfortable for the operators because it has different attachments that allow the operators to adjust the controls for a variety of arm and hand positions. The production manager has received the following offers from other companies:
1.Secord Corp. offered to give Chesley a similar machine plus $23,000 in exchange for Chesley's machine.
2.Bateman Corp. offered a straight exchange for a similar machine with essentially the same value in use.
3.Shripad Corp. offered to exchange a similar machine with the same value in use, but wanted $8,000 cash in addition to Chesley's machine.
4.The production manager has also contacted Ansong Corporation, a dealer in machines. To obtain a new machine from Ansong, Chesley would have to pay $93,000 and also trade in its old machine.
Chesley's equipment has a cost of $160,000, a net book value of $110,000, and a fair value of $92,000. The following table shows the information needed to record the machine exchange between the companies:
Secord
Bateman
Shripad
Ansong
Machine cost
$120,000
$147,000
$160,000
$130,000
Accumulated depreciationmachinery
45,000
71,000
75,000
-0-
Fair value
69,000
92,000
100,000
185,000
Instructions
(a)
For each of the four independent situations, assume that Chesley accepts the offer. Prepare the journal entries to record the exchange on the books of each company. (Round to the nearest dollar.) When you need to make assumptions for the entries, state the assumptions so that you can justify the entries.
(b)
Suggest scenarios or situations where different entries would be appropriate. Prepare the entries for these situations.
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