Karim Company exchanged equipment used in its manufacturing operations plus SAR6,000 in cash for similar equipment used in the operations of Mansour Company. The following information pertains to the exchange.

Karim Co Mansour Co

Equipment (cost) 84,000 84,000

Accumulated depreciation 57,000 30,000

Fair value of equipment 40,500 46,500

Cash given up 6,000

Instructions

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

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