Nonmonetary Exchange

Farley Company exchanged equipment used in its manufacturing operations plus $24,000 in cash for similar equipment used in the operations of Clarke Company. The following information pertains to the exchange.

Farley Clarke

Equipment (Cost) $336,000 $336,000

Accumulated Depreciation 228,000 180,000

Fair Value of Equipment 162,000 186,000

Cash Given Up 24,000

Cash Received 24,000

Instructions:

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

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