Accounting Assignment: Property, Plant, and Equipment
Problem 23-6 (AICPA Adapted) – Journal Entries and Explanations
Transaction 1: Exchange of Car for Computer
Cherish Company exchanged a car from inventory for a computer to be used as a long-term
asset.
- Carrying amount of the car (inventory): P600,000
- Fair value of the computer received: P860,000
- Cash paid: P100,000
- Fair value of car given: P860,000 - P100,000 = P760,000
Journal Entry:
Dr. Computer (PPE).............................P860,000
Cr. Inventory - Car............................P600,000
Cr. Cash.........................................P100,000
Cr. Gain on Exchange......................P160,000
Transaction 2: Exchange of Old Packaging Machine
Cherish exchanged an old packaging machine for a new one and paid P160,000.
- Cost of old machine: P1,200,000
- Accumulated depreciation (50%): P600,000
- Carrying amount: P600,000
- Fair value of old machine: P700,000
- Fair value of new machine: P700,000 + P160,000 = P860,000
- Gain on exchange: P700,000 - P600,000 = P100,000
Journal Entry:
Dr. Machinery (new)............................P860,000
Cr. Machinery (old)...........................P1,200,000
Dr. Accumulated Depreciation.......P600,000
Cr. Cash..........................................P160,000
Cr. Gain on Exchange.....................P100,000
Transaction 3: Nonmonetary Exchange of Equipment
Cherish exchanged old equipment for new used equipment.
- Cost of old equipment: P3,000,000
- Accumulated depreciation: P1,800,000
- Carrying amount: P1,200,000
- Fair value of new equipment: P1,500,000
- Gain on exchange: P300,000
Journal Entry:
Dr. Equipment (new)...........................P1,500,000
Cr. Equipment (old).........................P3,000,000
Dr. Accumulated Depreciation......P1,800,000
Cr. Gain on Exchange.....................P300,000
Transaction 4: Trade-in of Machine Plus Cash
Cherish traded in a machine and paid P600,000 for a new machine.
- Cost of old machine: P3,500,000
- Accumulated depreciation: P1,500,000 (implied from carrying value of P2,000,000)
- Fair value of new machine: P2,500,000
- Total consideration: P2,600,000
- Loss: P2,600,000 - P2,500,000 = P100,000
Journal Entry:
Dr. Machinery (new)............................P2,500,000
Cr. Machinery (old)..........................P3,500,000
Dr. Accumulated Depreciation......P1,500,000
Cr. Cash..........................................P600,000
Dr. Loss on Exchange......................P100,000
Transaction 5: Exchange of Delivery Truck Plus Cash
Cherish exchanged a delivery truck and paid cash for another truck.
- Cost of old truck: P1,000,000
- Accumulated depreciation: P350,000 (to get carrying value of P650,000)
- Fair value of truck received: P1,200,000
- Total consideration: P650,000 (truck) + P700,000 (cash) = P1,350,000
- Loss: P150,000
Journal Entry:
Dr. Delivery Truck (new)...................P1,200,000
Cr. Delivery Truck (old)..................P1,000,000
Dr. Accumulated Depreciation.....P350,000
Cr. Cash..........................................P700,000
Dr. Loss on Exchange......................P150,000