Question

Question A and B A. Pensacola Inc. exchanged old equipment for new equipment in two exchange...

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

Homework Answers

Answer #1
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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