Question
Two independent companies, Denver and Bristol, each own a warehouse, and they agree to an exchange in which no cash changes hands. The following information
Two independent companies, Denver and Bristol, each own a warehouse, and they agree to an exchange in which no cash changes hands. The following information for the two warehouses is available:
| Denver | Bristol | |
|---|---|---|
| Cost | $105,000 | $55,500 |
| Accumulated depreciation | 53,000 | 22,000 |
| Fair value | 45,000 | 45,000 |
Required:
| 1. | Assuming the exchange has commercial substance, prepare journal entries for Denver and Bristol to record the exchange. |
| 2. | Assuming the exchange does not have commercial substance, prepare journal entries for Denver and Bristol to record the exchange. |
| 3. | Next Level What is the justification of accounting for the exchange differently when the exchange has commercial substance versus when it does not? |
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Auditing and Assurance services an integrated approach
Authors: Alvin a. arens, Randal j. elder, Mark s. Beasley
14th Edition
133081605, 132575957, 9780133081602, 978-0132575959
