Question A and B
A. Pensacola Inc. exchanged old equipment for new equipment in
two exchange transactions. Each transaction has commercial
substance.
| Old Equipment | Cash | ||||||||||
| Book Value | Fair Value | Received | |||||||||
| Equipment A | $ | 73,700 | $ | 80,300 | $ | 12,800 | |||||
| Equipment B | $ | 60,300 | $ | 55,300 | $ | 9,100 | |||||
For Equipment A, Pensacola would record the new equipment at:
Multiple Choice
$67,500.
$69,000.
$71,750.
$55,000.
B. Horton Stores exchanged land and cash of $4,000 for similar
land. The book value and the fair value of the land were $88,100
and $100,000, respectively.
Assuming that the exchange has commercial substance,
Horton would record land-new and a gain/(loss) of:
| Land | Gain/(loss) | ||||||
| a. | $ | 104,000 | $ | 0 | |||
| b. | $ | 104,000 | $ | 11,900 | |||
| c. | $ | 92,100 | $ | 0 | |||
| d. | $ | 92,100 | $ | 11,900 | |||
Multiple Choice
Option A
Option B
Option C
Option D
| Q1 | |||||
| Answer is $67500 | |||||
| Explanation: | |||||
| Fair value of old equipment | 80300 | ||||
| Less: Cash received with new assets | 12800 | ||||
| New assets shall be recorded at | 67500 | ||||
| Q2. | |||||
| Answer is Option B | |||||
| Explanation: | |||||
| Fair value of old land | 100000 | ||||
| Add: Cash paid | 4000 | ||||
| New land will be recorded at | 104000 | ||||
| Gain on exchange of old land | |||||
| Fair valueof old land | 100000 | ||||
| Less: Book value of old land | 88100 | ||||
| Gain on exchange of old land | 11900 |
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