$*$Please show work: Problem $2$: Exchange of similar assets $(10$ points$)$

Prepare the necessary journal entries under each of the two scenarios.

Whitney Corporation and the Kiana Company are in the same line of business; both companies

manufacture sheet rock for single$-$family home construction. Both companies own a large piece of

equipment used to prepare and cut the sheets at different lengths. The original cost and accumulated

depreciation for each of the pieces of equipment is as follows.

The CEOs for Whitney Corporation and the Kiana Company have been friends for years. In the course of

a conversation last week, they realized that the equipment that each of them owned was actually

perfect for use by the other company. The CEOs agreed to exchange the pieces of equipment.

Scenario #$1-$Easy

The fair value of the Whitney equipment is $$85,000$ and the fair value of the Kiana equipment is

$$75,000.$ Thus, in addition to exchange equipment, Kiana must pay $$10,000$ cash to Whitney. Assume

this exchange has "commercial substance."

Whitney

Journal Entry

Kiana

Journal Entry

Scenario #$2-$very challenging

The fair value of the Whitney equipment is $$85,000$ and the fair value of the Kiana equipment is

$$75,000.$ Thus, in addition to exchange equipment, Kiana must pav $$10,000$ cash to Whitney. The

exchange lacks commercial substance and the $$10,000$ is assumed to be a "small" amount of cash.

Whitney

Journal Entry

Kiana

Journal Entry