Question

(Nonmonetary Exchange) Busytown Corporation, which manufactures shoes, hired a recent college graduate to work in its accounting department. On the first day of work, the accountant was assigned to total a batch of invoices with the use of an adding machine. Before long, the accountant, who had never before seen such a machine, managed to break the machine. Busytown Corporation gave the machine plus \(340 to Dick Tracy Business Machine Company (dealer) in exchange for a new machine. Assume the following information about the machines.

	Busytown Corp. (Old Machine)	Dick Tracy Co. (New Machine)
Machine cost	\)290	$270
Accumulated depreciation	140	0
Fair Value	85	425

Instructions

For each company, prepare the necessary journal entry to record the exchange. (The exchange has commercial substance.)

Short answer

1. In Busytown Corporation, Accumulated depreciation is $140
2. In Dick Tracy Company, sales revenue is $425

Step-by-step solution

Meaning of Journal

Journal refers to recording business transactions in the manner in which they occurred.

Preparing journal entries for Busytown Corp.

Date	Particular	Debit ($)	Credit ($)
	Machinery	425
	Accumulated Depreciation-Machinery	140
	Loss on Disposal of Machinery	65
	Machinery		290
	Cash		340

Working notes:

Computation of loss

Book value of old machine($290-$140)	$150
Less: Fair value of old machine	85
Loss on disposal of machinery	$ 65

Preparing journal entries for Dick Tracy Co.

Date	Particular	Debit ($)	Credit ($)
	Cash	340
	Inventory	85
	Cost of Goods Sold	270
	Sales Revenue		425
	Inventory		270