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 $90,000 $45,000 Accumulated depreciation 55,000 25,000 Fair value 30,000 30,000

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? CHART OF ACCOUNTS Chapter 10 General Ledger ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Building 185 Equipment 198 Accumulated Depreciation LIABILITIES 211 Accounts Payable 231 Salaries Payable 250 Unearned Revenue 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings REVENUE 411 Sales Revenue 882 Gain on Exchange EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 892 Loss on Exchange 910 Income Tax Expense