3. Complete the following case: page 133 - Case 5.1. Use the research issues memo format from Ch 3 and the Study Materials area of BB. Do not use a table format. The memo is to the file. Do not prepare a client letter or an e-mail response. Review the research memo grading rubric. Students must complete an accounting research memo in order to receive credit for this assignment. Apply the guidance from the Collins and Weirich chapters.. Submit one doc, docx, or rtf file in the Ch 5 Case area (click on 'view/complete'). Do not submit a pdf file. (30 points)

Facts: Acer Corp transfers factory equipment to Theta Corp in exchange for the receipt of $1 million cash and a 25% equity ownership stake in Theta. Acers book basis in the transferred equipment was $6 million, and the equipment was recently appraised for $6.5 million. The fair value of the investment in Theta is $5.5 million, and this fair value was reliably determined. The investment gives Acer significant influence over Theta but is not a controlling financial interest in Theta. Theta is in the business of making and selling tissues (such as Kleenex) and will use the building for tissue Production.

Prior to the transferring of the equipment, Acer used the equipment to produce paper plates and napkins. However, significant overseas competition has caused profit margins and demand for the domestic production of paper plates and napkins to fall. Production using the equipment had recently been cut down to only 1 x 8-hr shift per day. Tissues are expected to be a more profitable output, with steady consumer demand. Theta expects to run the equipment for 3 x 8-hr shifts per day. Acer hopes the investment in Theta will revive its slowing growth prospects.

Required: You are in the controllers group of Acer and need to determine the appropriate accounting for this transaction.

First evaluate whether this transactions is within scope of the applicable topic. In doing so, please also evaluate whether this transaction is a monetary or non-monetary exchange, based on the cash exchanged.

Next, determine the appropriate accounting for this transaction. In doing so, please be sure to evaluate whether the transaction has commercial substance (you may evaluate just one of the two conditions for commercial substance of your choice)

Organize Acers accounting issues into a memo, including journal entries for this transaction, and explain the authoritative basis for all journal entries recorded. Consider including a picture to enhance the background section of the memo.

Note: Par. 25-6 of relevant topic may be used to consider whether a transaction is monetary or non-monetary. However do not look at this paragraph when determining how to accounting for the value exchanged in this transaction.

Also assume that Acer will account for the ownership stake in theta using equity method