Question

Flat Tire Inc. exchanged equipment for three pickup trucks. The book value and fair value of the equipment given up were $40,000 (original cost of $75,000 less accumulated depreciation of $35,000) and $43,000, respectively.

1. Assume that Flat Tire Inc. paid $15,000 in cash and the exchange has commercial substance, at what amount will Flat Tire, Inc. value the pickup trucks?

a.

$67,000

b..

$75,000

c.

$58,000

d.

$43,000

2. Assume that Flat Tire Inc. paid $15,000 in cash and the exchange lacks commercial substance, at what amount will Flat Tire, Inc. value the pickup trucks?

a.

$58,000

b.

$55,000

c.

$75,000

d.

$72,000

3. Assume that Flat Tire Inc. paid $15,000 in cash and the exchange has commercial substance, how much gain or loss will Flat Tire, Inc. recognize on the exchange?

a.

3,000 gain

b.

3,000 loss

c.

$15,000 gain

d.

$15,000 loss

Answer 1