CA 10-5 - CA 10-5 (a) Client A T reatment if has Commercial...

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Unformatted text preview: CA 10-5 (a) Client A T reatment if has Commercial Substance Client A would recognize a gain of $35,000 on the exchange. The basis of the asset acquired would be $125,000. The entry would be as follows: Machinery ($95,000 + $30,000)........................................................................ 125,000 Accumulated Depreciation—Machinery .......................................................... 40,000 Cash .............................................................................................................. 30,000 Gain on Disposal of Plant Assets ............................................................ 35,000* Machinery..................................................................................................... 100,000 *Book value of old machinery ($100,000 – $40,000) $60,000 Fair value of old machinery 95,000 Gain on disposal of plant asset $35,000 (b) T reatment if lacks Commercial Substance Client A would be prohibited from recognizing a $35,000 gain on the exchange. This is because the transaction lacks commercial substance. The new asset on his books would have a basis of $90,000 ($125,000 less the $35,000 unrecognized gain). The entry would be as follows: Machinery ($125,000 – $35,000)...................................................................... 90,000Machinery ($125,000 – $35,000)....
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This note was uploaded on 06/06/2010 for the course ACCOUNTING ac505 taught by Professor Khan during the Spring '10 term at DeVry Fremont.

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CA 10-5 - CA 10-5 (a) Client A T reatment if has Commercial...

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