1. Debits and Credits Acquisition of PP&E

Journal entry to record trading in old equipment in exchange for equipment from a used dealership for example (nonmonetary exchange, commercial substance)

• Debit Equipment for cost of new equipment

• Debit Accumulated Depreciation - Equipment for the amount of Accumulated Depreciation on the equipment traded in

• Debit Loss on disposal of equipment for amount lost

• Credit Equipment for original cost

• Credit Cash for amount of cash paid

Entry to record exchanging old equipment for new equipment when there is no commercial substance but there is a gain that is deferred (nonmonetary exchange)

• Debit Equipment for cost of the new equipment

• Debit Accumulated depreciation for amount of accumulated depreciation on old equipment

• Credit Equipment for original cost of old equipment

• Credit Cash for amount of cash paid

Entry to record exchange of equipment (some gain deferred, lack commercial substance, some cash is received)

• Debit Equipment for cost basis of new equipment calculated as Fair value of new equipment - gain deferred

• Debit Cash for amount of cash received in the exchange

• Debit Accumulated Depreciation for amount of Accumulated Depreciation

• Credit Equipment for cost of old equipment

• Credit Gain on Disposal of Equipment for amount of gain recognized

Entry to record when a company receives a donation of land from another company

Debit Land for fair value, Credit Contribution Revenue for fair value

When a company donates land to another entity

Debit Contribution expense for fair value of the land, Credit land for cost, Debit / Credit Gain / Loss on Disposal of land for amount of gain or loss.

Amount of gain or loss is fair value of the land - cost of the land

Substitution approach entry to record replacement or improvements

• Debit Plant Assets for cost

• Debit Accumulated Depreciation - Plant Assets (amount given in problem)

• Debit / Credit Loss / Gain on Disposal of Plant assets for amount of loss or gain.

This is calculated as $150,000 original cost of old tubing + $124,000 cash paid for new tubing - $125,000 fair value of new tubing - $135,000 accumulated depreciation on the old tubing.

$125,000 cost of plastic tubing is the fair value.

• Credit Plant Assets for cost of old plant asset

• Credit Cash for amount of cash paid