Cheyenne Company exchanged equipment used in its manufacturing operations plus $3,540 in cash for similar equipment used in the operations of Ayayai Company. The following information pertains to the exchange.

Cheyenne Co. Ayayai Co.

Equipment (cost) $33,040 $33,040

Accumulated depreciation 22,420 11,800

Fair value of equipment 14,750 18,290

Cash given up 3,540

1. Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance.

2. Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange has commercial substance.