Financial statement

Shenefelt Medical Center wants to dispose of its CAT scan machine. The original cost of the machine was $445,000, and depreciation of $374,000 has been recorded to date. The purchasing manager is contemplating the following alternatives to dispose of the machine. (Treat each alternative independently.)

1. Mainland Medical Supply is willing to take the old machine and give Shenefelt a $85,000 trade-in allowance toward the purchase of a new CAT scan machine with a list price of $310,000. The balance of the price must be paid in cash.

2. Cornell Medical Supply is willing to give Shenefelt a $65,000 trade-in allowance on a new CAT scan machine with a list price of $325,000, the balance to be paid in cash.

3. Century Medical Center is willing to make an even exchange. Century will exchange its CAT scan machine for Shenefelt’s CAT scan. Shenefelt’s CAT scan has a fair market value of $80,000. The CPA for Shenefelt says this exchange has no commercial substance.

4. Saxony Medical Center is willing to give Shenefelt an ambulance with a fair market value of $65,000 and $20,000 cash for Shenefelt’s CAT scan.

Required:

A. Prepare Shenefelt’s journal entry to record each of these alternatives for financial statement purposes.

B. Was the gain/loss recognized for each of the alternatives? If not, why not?

Solution:

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