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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 | $100,000 | $56,500 |
Accumulated depreciation | 50,000 | 23,000 |
Fair value | 44,500 | 44,500 |
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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