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ABC Company and XYZ Company entered into a nonmonetary exchange lacking commercial substance. In the exchange, ABC gave XYZ a building with a book value of $90,000 ($150,000 cost - $60,000 accumulated depreciation) and a fair value of $125,000 in exchange for $25,000 and an XYZ building with a book value of $80,000 ($95,000 cost - $15,000 accumulated depreciation) and a fair value of $100,000. Prepare the journal entry to record the exchange in ABC's and XYZ's books.

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Answer:

New Building Acquired at Carrying Amount  $90,000 (debit)

Accumulated Depreciation on Building given up $60,000 (debit)

Cost of Building given up $150,000 (credit)

Explanation:

Where the exchange transaction lacks commercial substance, the asset that is acquired is measured at the carrying amount (Cost less Accumulated Depreciation) of the asset given up, and no gain or loss cannot be estimated reliably.

The Building with Carrying Amount of $90,000 ($150,000 cost - $60,000 accumulated depreciation).

Thus the Journal will be :

New Building Acquired at Carrying Amount  $90,000 (debit)

Accumulated Depreciation on Building given up $60,000 (debit)

Cost of Building given up $150,000 (credit)

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