Question

Loftin Company traded machinery with a book value of $950,000 and a fair value of $900,000. It received in exchange from Thomas Company a machine with a fair value of $1,000,000. Loftin also paid cash of $100,000 in the exchange. Thomas’s machine has a book value of $950,000. What amount of gain or loss should Loftin recognize on the exchange (assuming lack of commercial substance)?

Group of answer choices

$ -0-.

$100,000 gain

$5,000 loss

$50,000 loss

Answer 1

There will be No gain or Loss on Exchanging of the Assets

Therefore Gain or Loss =0

If You Have Any Queries Please Do Comment

If Exchanging Transactions not having Commercial Substance should be accounted at Carrying Value of the Old asset ,plus if cash paid for Exchanging Transaction. Carrying Value of the Machinery is $950,000 Cash Payment is $100,000 Journal Entry for Recognition of machinery Machinery $1050,000 Machinery $ 950,000 Cash $100,000