Stacey Company Limited exchanged equipment that it uses in its manufacturing operations for similar equipment that is used in the operations of Chokar Company Limited. Stacey also paid Chokar $3,200 in cash. The following information pertains to the exchange:

Instructions
(a) Prepare the journal entries to record the exchange on the books of both companies assuming the exchange is determined to have commercial substance.
(b) Repeat part (a), assuming the exchange is determined not to have commercial substance.
(c) List some of the factors that the accountant would need to consider in order to determine whether the transaction has commercial substance.

Transcribed Image Text:

Chokar Co. Equipment (cost) Accumulated depreciation Fair value of equipment Cash paid Stacey Co $50,000 31,250 25,000 3,200 $55,000 22,000 28,000