[zcyankeefan]

Hey everyone,

I’m a bit confused regarding the journal entries for exchanges lacking commercial substance. In the Becker text they show entries that don’t include accumulated depreciation (for the assets “your” company was giving up). Fast-forward to one of their practice exams, one of the SIMS was about preparing journal entries regarding exchanges that lacked commercial substance. I thought I was doing it correctly when I didn’t include accumulated depreciation in my entry (because Becker didn’t, and since I’m not using any other materials I thought nothing of it. However, I got the entire problem wrong because BECKER’S answer key included accumulated depreciation as part of the JE’s.

Is there a “right” or “wrong” way in preparing these entries? Right now I’m assuming that a JE for an exchange that LACKS commercial substance is as follows (extra accounts are added to cover my bases):

DR: Cash received

DR: New asset acquired (at book value)

DR: Accum. depr. of asset given up

DR: Loss (if any, usually the difference between the FV and BV of asset given)

CR: Cash given

CR: Old asset (at book value)

CR: Gain (if any, depends on percentage boot is to entire consideration received)

I know the above entry is used for exchanges that have commercial substance, but since I saw that answer key I don’t know what to think anymore. Any help is appreciated (hopefully before Friday, that’s when I take the exam =/ ).

FAR -> 76
AUD -> 74...Revenge 2/16/13
REG -> 83
BEC -> 75