Reference no: EM132492193
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:
Point 1. Secord Corp. offered to give Chesley a similar machine plus $23,000 in exchange for Chesley's machine.
Point 2. Bateman Corp. offered a straight exchange for a similar machine with essentially the same value in use.
Point 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. Assume that the exchange is nonmonetary and lacks commercial substance.
Point 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 depreciation-machinery 45,000 71,000 75,000 -0-
Fair value 69,000 92,000 100,000 185,000
Instructions
Question 1: 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.
Question 2: Suggest scenarios or situations where different entries would be appropriate. Prepare the entries for these situations.