Question

Equipment that cost $66,000 and has accumulated depreciation of $30,000 is exchanged for equipment with a...

Equipment that cost $66,000 and has accumulated depreciation of $30,000 is exchanged for equipment with a fair value of $48,000 and $12,000 cash is received. The exchange lacked commercial substance. The new equipment should be recorded at:

a. $48,000.

b. $36,000.

c. $30,000.

*d. $28,800.

Answer is d but please show work and formulas are applied..

Recognized gain?

Homework Answers

Answer #1

We recognized at fair value only when following two condition is satified

1) fair value should be reliable measured

2) Transations should have commercial substance

If any of the above conditions not satisfied should be recorded at cost of the assets given.

In the viven case 2 condition not satisfied

So new assets recorded at cost of assets given i.e cost-dep

66000-30000 =36000 new assets should be recoded

There is no gain or loss on transaction

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