Edmond Company exchanged machinery with an appraised value of $1,755,000, a

recorded cost of $2,700,000 and Accumulated Depreciation of $1,350,000 with Rosen

Corporation for machinery Rosen owns. The machinery has an appraised value of
$1,695,000, a recorded cost of $3,240,000, and Accumulated Depreciation of $1,782,000.
Rosen also gave Edmond $60,000 in the exchange. Assume depreciation has already been
updated. Instructions (a) Prepare the entries on both companies' books assuming that the
exchange had commercial substance. (Round all computations to the nearest dollar.) (b)
Prepare the entries on both companies' books assuming that the exchange lacked
commercial substance. (Round all computations to the nearest dollar.)
(a)

Commercial Substance
Edmond
Machinery....................................... 1,695,000
Cash.................................................
60,000
Accum. Depreciation
Machinery................................... 1,350,000
Gain on Exchange of
Plant Assets...................
405,000
Machinery........................
2,700,000
Rosen
Machinery....................................... 1,755,000
Accum. Depreciation
Machinery................................... 1,782,000
Gain on Exchange of
Plant Assets...................
237,000
Machinery........................
3,240,000
Cash..................................
60,000

(b)

Cost
A/D
BV
FV
Gain

$2,700,000
1,350,000
1,350,000
1,755,000
$ 405,000

Cost
A/D
BV
FV
Gain

$3,240,000
1,782,000
1,458,000
1,695,000
$ 237,000

No Commercial Substance
Edmond
Machinery...................................................................................... 1,303,846
Cash...............................................................................................
60,000
Accumulated DeprecationMachinery........................................ 1,350,000
Gain on Exchange..........................................................
Machinery.......................................................................
2,700,000

13,846

$60,000 ($60,000 + $1,695,000) $405,000 = $13,846

Rosen
Machinery...................................................................................... 1,518,000
Accumulated DepreciationMachinery....................................... 1,782,000
Machinery.......................................................................
3,240,000
Cash................................................................................

60,000