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What is the justification of accounting for the exchange

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Problem - Exchange of Assets 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. What is the justification of accounting for the exchange differently when the exchange has commercial substance versus when it does not?

Reference no: EM132885383

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