CHAPTER 10 EXAMPLES OF NONMONETARY EXCHANGES WITH SOLUTIONS

CHAPTER 10 EXAMPLES OF NONMONETARY EXCHANGES WITH SOLUTIONS...

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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. 1. The gain to be recorded on the exchange is *a. $0. b. $2,500 gain. c. $5,000 gain. d. $15,000 gain. Since the transaction lacked commercial substance, and cash is paid, no gain is recognized. Book Value of Asset Given Up $ 30,000 FMV of Asset Given Up $ 27,500 Gain $ 2,500 2. The new machine should be recorded at a. $107,500. b. $122,500. *c. $132,500. d. $135,000. Journal Entry New Machine $ 132,500 Accum. Depreciation $ 95,000 Old Asset $ 120,000 Cash Paid $ 107,500 Cash paid determined by taking FMV of new of $ 135,000 less the FMV of old = $ 107,500. Accum. Depreciation was $ 90,000 thru 12/31/06; since asset was sold April 1, 2007,
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CHAPTER 10 EXAMPLES OF NONMONETARY EXCHANGES WITH SOLUTIONS...

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