Asset Exchange (Drafting an Issues Memo)Facts:Paper Paper, Inc. transferred equipment toAchoo, Inc. in

exchange for the receipt of $1.5 million cash and a 20% equity ownership stake inAchoo. Papers book basis in the

transferred equipment was $7 million, and the equipment was recently appraised for $7.5 million. The fair value of

the investment inAchoo is $6 million, and this fair value was reliably determined. The investment gives Paper sig-

nificant influence overAchoo but is not a controlling financial interest inAchoo.Achoo is in the business of making

and selling tissues (such as Kleenex) and will use the equipment for tissue production.

Prior to transferring the equipment, Paper used the equipment to produce paper plates and napkins. However,

significant overseas competition has caused profit margins and demand for the domestic productionof paper plates

and napkins to fall. Production using the equipment had recently been cut down to only 1 8-hr shift per day.Tissues

are expected to be a more profitable output, with steady consumer demand.Achoo expects to run the equipment for

3 8-hr shifts per day. Paper hopes the investment inAchoo will revive its slowing growth prospects.

Required:You are in the controllers group of Paper and need to prepare an accounting issues memo 1) evaluating

the scope of the applicable topic, and 2) documenting the appropriate accounting for this transaction. Include in

your memo the journal entries for this transaction, and explain the authoritative basis for all journal entries recorded.

Consider including a picture to enhance the Facts section of the memo.Assume that Paper will account for the owner-

ship stake in Achoo using the equity method.