Polar Sky Railway (PSR), a transportation company, has substantial investments in property, plant, and equipment. In 2020, the company exchanged some of these assets with other companies. [Note: any depreciation expense prior to the following transaction has already been properly recorded.] PSR transported some luxury automobiles from the port in Vancouver to Winnipeg "for free." The company does not usually transport cars on this route, so a fair value was not determinable. However, there were negligible incremental costs because doing this involved simply attaching a few extra railcars to an existing train bound for Winnipeg. For doing this, PSR received two luxury cars, which the company awarded to executives as perquisites (perks). These cars had a retail value totaling $450,000.
Required:
Record the journal entry for the above transaction on PSR's books. State your reason(s)for the chosen accounting method.

Question

Quizplus · Accepted Answer

The Answer of Polar Sky Railway (PSR), a transportation company, has substantial investments in property, plant, and equipment. In 2020, the company exchanged some of these assets with other companies. [Note: any depreciation expense prior to the following transaction has already been properly recorded.] PSR transported some luxury automobiles from the port in Vancouver to Winnipeg "for free." The company does not usually transport cars on this route, so a fair value was not determinable. However, there were negligible incremental costs because doing this involved simply attaching a few extra railcars to an existing train bound for Winnipeg. For doing this, PSR received two luxury cars, which the company awarded to executives as perquisites (perks). These cars had a retail value totaling $450,000.
Required:
Record the journal entry for the above transaction on PSR's books. State your reason(s)for the chosen accounting method.

Polar Sky Railway (PSR), a Transportation Company, Has Substantial Investments