Jager Ltd., a joint venture, was formed on January 1, Year 3. Clifford Corp., one of the three founding venturers, invested equipment for a 40% interest in the joint venture. The other two venturers invested land and cash for their 60% equity. All of the venturers agreed that the equipment had a fair value of $2,000,000, and a remain ing useful life of approximately eight years. Clifford had acquired this equipment two years ago, and the carrying amount on Clifford's records on January 1 Year 3 was $1,800,000. Clifford recorded its investment in the joint venture at $2,000,000. On December 31, Year 3, Jager recorded a net income of $200,000. Clifford uses the equity method to record its investment.
Required:
(a) Assume that the transaction did not have commercial substance when Clifford transferred the equipment to the joint venture. Prepare Clifford's Year 3 journal entries.
(b) Assume Clifford had received a 40% interest and $1,000,000 in cash in return for investing this equipment in the venture. Also assume that the other venturers contributed cash in excess of $1,000,000 for their ownership interests, and that the transaction did not have commercial substance when Clifford transferred the equipment to the joint venture. Prepare Clifford's Year 3 journal entries.