Sarah Company Is Exchanging a Special Machine for a Similar

question 26

Essay

Sarah Company is exchanging a special machine for a similar machine from Wilhelm, Inc. Sarah's equipment originally cost $300,000 and has accumulated depreciation of $125,000. Wilhelm's machine cost $250,000 and has a book value of $150,000. No cash will be exchanged because the fair value of both machines is $160,000. Each company expects their cash flows will increase after the exchange.
Required:
Prepare the journal entry for each company.

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Definitions:

Equity Financing

Exchanging ownership shares for outside investment monies.

Ownership Shares

Portions of equity in a company or financial assets which demonstrate an individual's or entity's part ownership.

Creativity

The ability to generate new and original ideas, solutions, or products.

Initiative

The ability to assess and initiate things independently, often leading to action without direct orders.