Problem #2 (Nonmonetary Exchange)

Mathews Company exchanged equipment used in its manufacturing operations plus $6,000 in cash for similar equipment used in the operations of Biggio Company. The following information pertains to the exchange.

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.

Mathews Co Biggio Co. $56,000 20,000 1,000 Equipment (cost) Accumulated depreciation Fair value of equipment Cash given up $56,000 38,000 25,000 6,000