CHAPTER 10 EXAMPLES OF NONMONETARY EXCHANGES AND SOLUTIONS
Use the following information for questions 1 and 2.
A machine cost $120,000, has annual depreciation of $20,000, and has accumulated
depreciation of $90,000 on December 31, 2006. On April 1, 2007, when the machine has a
market value of $27,500, it is exchanged for a machine with a fair value of $135,000 and the
proper amount of cash is paid. The exchange lacked commercial substance.
The gain to be recorded on the exchange is
Since the transaction lacked commercial substance, and cash is paid, no gain is
Book Value of Asset Given Up
FMV of Asset Given Up
The new machine should be recorded at
Cash paid determined by taking FMV of new
of $ 135,000 less the FMV of old = $
Accum. Depreciation was $ 90,000 thru 12/31/06; since asset was sold April 1, 2007,