Question

Angle Corporation exchanged a machine with a carrying amount of $24,000 and a fair value of...

Angle Corporation exchanged a machine with a carrying amount of $24,000 and a fair value of $40,000 and $5,000. The cash flows from the new machine are not expected to be significantly different from the cash flows of the old machine. The fair value of the machine received was $35,000. At what amount should Angle record the truck received in the exchange?

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Answer #1
Because the cash flows of the exchanged assets will not be significantly different, the transaction lacks commercial substances.
Therefore, book value is used to record the transition. When the assets are exchanged, boot is received, and a gain results,
the exchange is treated as part sale and part exchange. The earnings process is assumed to be complete for the portion relating to the boot received.
The gain recognized is computed as follows:
Boot Received * Total Gain = Gain recognized
Boot Received+FMV of assets received
Total Gain= 35000+5000-24000
( Assets Received- Book Value of asset)
16000
Gain recognized as follows
5000 * 16000
35000+5000
5000 * 16000
40000
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