Question

Acer Corp transfers factory equipment to Theta Corp in exchange for the receipt of $1 million cash and a 25% equity ownership stake in Theta. Acers book basis in the transferred equipment was $6 million, and the equipment was recently appraised for $6.5 million. The fair value of the investment in Theta is $5.5 million, and this fair value was reliably determined. The investment gives Acer significant influence over Theta but is not a controlling financial interest in Theta. Theta is in the business of making and selling tissues (such as Kleenex) and will use the building for tissue Production. Prior to the transferring of the equipment, Acer used the equipment to produce paper plates and napkins. However, significant overseas competition has caused profit margins and demand for the domestic producton of paper plates and napkins to fall. Production using the equipment had recently been cut down to only 1 x 8-hr shift per day. Tissues are expected to be a more profitable output, with steady consumer demand. Theta expects to run the equipment for 3 x 8-hr shifts per day. Acer hopes the investment in Theta will revive its slowing growth prospects.

Use a FASB codification and include all of Acer's journal entries for this transaction.