3. On August 1, two independent companies, Denver and Broncos, each own a machine and they agree to an exchange. The following information is available:

Denver Broncos

Cost $90,000 $45,000

Accumulated Depreciation 55,000 25,000

Fair Value 28,000 30,000

Denver agrees to pay Broncos $2,000 to complete the exchange.

1) Why does Denver agree to pay $2,000 to Broncos?

2) Prepare the necessary journal entry by Denver Company to record this transaction, assuming the exchange has

A) Commercial Substance

B) No Commercial Substance

3) Prepare the necessary journal entry by Broncos to record this transaction, assuming the exchange has

A) Commercial Substance.

B) No Commercial Substance: Same

4. Wilson Corporation exchanged land and $4,500 cash for material handling equipment. The land had a book value of $45,000 and a fair value of $58,000. Assume the exchange has no commercial substance.

Prepare the journal entry to record the exchange.