Exchange of Machinery
Assume that Coaltown Corporation has a machine that cost $52,000, has a book value of $35,000, and has a market value of $40,000. The machine is used in Coaltown’s manufacturing process. For each of the following situations, indicate the value at which the company should record the new asset and why it should be recorded at that value.
(a) Coaltown exchanged the machine for a truck with a list price of $43,000.
(b) Coaltown exchanged the machine with another manufacturing company for a similar machine with a list price of $41,000.
(c) Coaltown exchanged the machine for a newer model machine from another manufacturing company. The new machine had a list price of $62,000, and Coaltown paid a “large” amount of cash of $15,000.
(d) Coaltown exchanged the machine plus a “small” amount of cash of $3,000 for a similar machine from Newton Inc., a manufacturing company. The newly acquired machine is carried on Newton’s books at its cost of $55,000 with accumulated depreciation of $42,000; its fair market value is $43,000. In addition to determining the value, give the journal entries for both companies to record the exchange.