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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: 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. Next Level What is the justification of accounting for the exchange differently when the exchange has commercial substance versus when it does not? Chart of Accounts Assume the exchange has commercial substance and occurred on April 1. Prepare journal entries for De he exchange. Record Denver's transaction on page 9 and Bristol's on page 12. GENERAL JOURNAL Assume the exchange does not have commercial substance and occurred on April 1. Prepare journal ent o record the exchange. Record Denver's transaction on page 9 and Bristol's on page 12. Exchange of Assets What is the justification of accounting for the exchange differently when the exchange has commercial substance versus when it does not? When an exchange has commercial substance, the economic position of the two companies . The company's future cash flows are expected to as a result of the exchange and gains and losses are at the time of the exchange. If the exchange does not have commercial substance and results in a gain, GAAP requires the gain to be deferred by the cost of the new asset. GAAP imposes this requirement to prevent companies from structuring transactions to exchange economically equivalent assets simply in orde to book a gain in income

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