112 all 2007 ch 10 class discussion 9-19-07

# 112 all 2007 ch 10 class discussion 9-19-07 - Cost A/D BV...

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Susquehanna and Shawnee Not Related FASB 153 Susquehanna Shawnee Cost \$160,000 Cost \$160,000 A/D -\$50,000 A/D -\$75,000 BV \$110,000 BV \$85,000 FMV \$92,000 FMV \$100,000 Cash Paid \$8,000 Cash Received \$8,000 Using the FMV of the new asset Got \$100,000 Got \$92,000 Gave -\$110,000 \$8,000 Total -\$8,000 Total \$100,000 Loss -\$18,000 Gave -\$85,000 Loss Gain \$15,000 New \$100,000 New \$92,000 A/D \$50,000 A/D \$75,000 Loss \$18,000 Cash \$8,000 Cash \$8,000 Gain \$15,000 Old \$160,000 Old \$160,000 \$168,000 \$168,000 \$175,000 \$175,000 Using the FMV of the old asset FMV \$92,000 FMV \$100,000 BV -\$110,000 BV -\$85,000 Loss -\$18,000 Gain \$15,000 FMV \$92,000 FMV \$100,000 Cash Paid \$8,000 Cash Received -\$8,000 New \$100,000 New \$92,000 Entries New \$100,000 New \$92,000 A/D \$50,000 A/D \$75,000 Cash \$8,000 Cash \$8,000 Loss \$18,000 Gain \$15,000 Old \$160,000 Old \$160,000 \$176,000 \$160,000 \$175,000 \$175,000 Entries are the same Why are the solutions the same when we used different assumptions? Susquehanna and Shawnee Not Related (APB 29) The entry for Susquehanna are the same since a loss was indicated \$8,000/(\$8,000+\$92,000)= 8% \$15,000 \$1,200 OR \$8,000/(\$8,000+\$92,000)= Book value 'sold' 8% \$85,000 \$6,800 Gain recognized SP-CGS \$8,000 -\$6,800 \$1,200 "Cost" of new asset \$85,000 -\$6,800 \$78,200 New \$92,000 -\$15,000 \$1,200 \$78,200 A/D \$75,000 Cash \$8,000 Gain \$1,200 Old \$160,000 \$161,200 \$161,200 Since a gain was indicated and a gain was indicated, Shawnee would have to recognize a portion of the gain

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112 all 2007 ch 10 class discussion 9-19-07 - Cost A/D BV...

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