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25 April, 16:40

Omega Corp. has entered into a transaction with Lively Inc. Omega Corp will give its equipment to Lively Inc. in exchange for Lively's equipment. Omega Corp will also pay Lively Inc. $30,000 cash. Omega Corp's equipment originally cost $250,000 when it was purchased 2 years ago and currently has $80,000 of accumulated depreciation and an estimated fair value of $230,000. Lively's equipment has a cost of $212,000 and accumulated depreciation of $35,000. The fair value of Lively Inc's equipment is determined to be $260,000.

Required:

A. Prepare the journal entry for Omega Corp assuming the exchange has commercial substance.

B. Prepare the journal entry for Omega Corp assuming the exchange lacks commercial substance.

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  1. 25 April, 19:45
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    A.

    Equipment-from Lively $260,000

    Accumulated Depreciation Dr.$80,000

    Equipment-old Cr. $250,000

    Cash Cr.$30,000

    Gain on Exchange Cr.$60,000

    B.

    Equipment-from Lively (212,000-35,000) Dr.$177,000

    Accumulated Depreciation Dr.$80,000

    Loss on exchange (balancing figure) Dr.$23,000

    Equipment old Cr.$250,000

    Cash Cr.$30,000
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