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.
(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.