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Question: Verez Limited owns 90% of Consior Inc.

Verez Limited owns 90% of Consior Inc. During 2017, Verez acquired a machine from Consior in exchange for its own used machine. Both companies are in the tool-making business. The agreed exchange amount is $1,000, although the transaction is nonmonetary. Consior has an original cost of $6,000 and carries its machine on its books at a carrying amount of $700, whereas Verez has an original cost of $7,000 and carries its machine on its books at a carrying amount of $900. Neither company has a balance in the Contributed Surplus account relating to previous related-party transactions. Both Verez and Consior follow ASPE. Instructions: Using the related-party decision tree in Illustration 23-5, prepare the journal entries to record the exchange for both Verez and Consior under the following assumptions. (a) The transaction is not in the normal course of operations for either company, and the transaction has commercial substance. (b) The transaction is not in the normal course of operations for either company, and the transaction does not have commercial substance. (c) The transaction is in the normal course of operations for each company, and the transaction has commercial substance. (d) The transaction is in the normal course of operations for each company, and the transaction does not have commercial substance. (e) Briefly explain how your answers to parts (a) through (d) would change if both companies were to follow IFRS. Illustration 23-5:
Verez Limited owns 90% of Consior Inc. During 2017, Verez acquired a machine from Consior in exchange for its own used machine. Both companies are in the tool-making business. The agreed exchange amount is $1,000, although the transaction is nonmonetary. Consior has an original cost of $6,000 and carries its machine on its books at a carrying amount of $700, whereas Verez has an original cost of $7,000 and carries its machine on its books at a carrying amount of $900. Neither company has a balance in the Contributed Surplus account relating to previous related-party transactions. Both Verez and Consior follow ASPE.

Instructions:
Using the related-party decision tree in Illustration 23-5, prepare the journal entries to record the exchange for both Verez and Consior under the following assumptions.
(a) The transaction is not in the normal course of operations for either company, and the transaction has commercial substance.
(b) The transaction is not in the normal course of operations for either company, and the transaction does not have commercial substance.
(c) The transaction is in the normal course of operations for each company, and the transaction has commercial substance.
(d) The transaction is in the normal course of operations for each company, and the transaction does not have commercial substance.
(e) Briefly explain how your answers to parts (a) through (d) would change if both companies were to follow IFRS.

Illustration 23-5:





Transcribed Image Text:

Related-party transaction occurs Is the transaction in the normal course Yes of operations? No Is the change in the ownership interests in the item transferred substantive? Is the amount of the exchange supported by independent evidence? Yes - Yes Is the transaction Yes a nonmonetary exchange or transfer of a nonmonetary asset? Is the transaction an exchange of Yes products or property held for sale in the normal course of operations to facilitate sales? No (a) No (a) No No Does the transaction have Yes commercial substance? No Measure at carrying amount (b) Measure at exchange amount (a) Carrying amount is used for both monetary and nonmonetary transactions in these circumstances. (b) In rare circumstances, when the carrying amount of the item received is not available, a reasonable estimate of the carrying amount, based on the transferor's original cost, may be used to measure the exchange.


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3.99

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