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A company has two divisions: a merchandising division and a construction dividion. The
merchandising division purchases and sells construction equipment. The construction
division builds shopping centres.
The company entered into two nonmonetary transactions during the year ended
December 31, 20x5:
a. Exchanged construction equipment held in inventory at a cost of $25,000 in
exchange for plumbing services on one of the construction contracts. The
plumbing services were contracted to cost $43,000. The equipment would
normally sell for $46,000. The bookkeeper wrote the following journal entry to
record this transaction:
Cost of goods sold construction division 25,000
Inventory 25,000
b. During 20x4, the company purchased Land 2 at a cost of $2,500,000. On July 2,
20x5, it exchanged 20% (the land was subdivided) of Land 2 for equipment that is
to be used in the course of business (i.e. not inventory). The fair value of the land
was $600,000 and the fair value of the equipment was $620,000. The bookkeeper
was unsure of how to account for this transaction and did not write a journal entry.
The companys policy is to depreciate equipment using the diminishing balance
method at the rate of 15% per year.
Required For each of the transactions above, prepare the adjusting journal entry/entries
required at December 31, 20x5.
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