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Prepare the journal entry to record the exchange

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Question - On August 31, 2021, Thunder Bay Limited agreed to an exchange of equipment with another company. Other information regarding the exchange follows:

Cost of the equipment given up by Thunder Bay Limited $200,390

Fair value of the equipment given up $114,830

Amount of cash received by Thunder Bay Limited in the course of the exchange $1,135

Fair value of the equipment received in the exchange $125,165

The equipment of which Thunder Bay is disposing was acquired on May 1, 2019. The following information was used by the company for the purpose of depreciating this equipment on a double-declining basis for the 2019, 2020, and 2021 years:

Estimated residual value $37,503

Estimated useful life (in years) 5

Thunder Bay Limited has a year end of December 31, and calculates depreciation to the nearest full month.

Required -

1. Calculate the accumulated depreciation on the equipment given up by Thunder Bay Limited on August 31, 2021.

2. Assuming the transaction has commercial substance, prepare the journal entry to record the exchange on the books of Thunder Bay Limited.

3. Assuming the transaction lacks commercial substance, prepare the journal entry to record the exchange on the books of Thunder Bay Limited.

Reference no: EM133055210

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