How
would the transaction in BE23-11 be recorded if the individual shareholder only
owned 40% of the shares of each company? Assume that there is independent
evidence to support the value of the computer software.
In
BE Textile manufacturer Peterson Corp. exchanges computer software having a
carrying amount of $11,000 with the real estate company Frederick Corp. The
software that is received in exchange from Frederick Corp. has a carrying
amount of $15,100, performs different functions, and has a fair value of
$20,800. Both companies are 100% owned by the same individual and since they
are closely held companies they both follow
Discuss
and prepare journal entries. Use the decision tree in Illustration 23-5 to
explain the reasoning for your answer.
If the shareholder owned only 40%, there is a presumption
that there has been a substantive change in ownership. A change in ownership is considered
substantive where an unrelated party has gained or given up > 20% interest
in the item exchanged. In the case of a substantive change in ownership, the
transaction would be recorded in the same way as in BE23-12.
Peterson
Corp.
Computer software (new)................... 20,800
Computer
Software (old).............. 11,000
Gain on
disposal of software......... 9,800
Frederick
Corp.
Computer software (new)................... 20,800
Computer
Software (old).............. 15,100
Gain on
disposal of software......... 5,700
