Ayayai Company exchanged equipment used in its manufacturing operations plus $4,140 in cash for similar equipment used in the operations of Pina Company. The following information pertains to the exchange.
Ayayai Co. Pina Co. Equipment (cost) $38,640 $38,640
Accumulated depreciation 26,220 13,800
Fair value of equipment 17,250 21,390
Cash given up 4,140
a) Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange lacks commercial substance.
b) Prepare the journal entries to record the exchange on the books of both companies. Assume that the exchange has commercial substance.
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