question archive Texas Company exchanged equipment that cost $66,000 and has accumulated depreciation of $30,000 for equipment with a fair value of $48,000 and received $12,000 cash
Texas Company exchanged equipment that cost $66,000 and has accumulated depreciation of $30,000 for equipment with a fair value of $48,000 and received $12,000 cash
Subject:AccountingPrice:2.87 Bought7
Texas Company exchanged equipment that cost $66,000 and has accumulated depreciation of $30,000 for equipment with a fair value of $48,000 and received $12,000 cash. The exchange lacked commercial substance. The gain to be recognized from the exchange is:
a. $4,800 gain
b. $6,000 gain
c. $18,000 gain
d. $24,000 gain
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Solution: Option a $4,800 gain
Working:
Calculation of gain to be recognized from the exchange:
|
Particulars |
Amount ($) |
|
Cost |
66,000 |
|
Less: Accumulated depreciation |
30,000 |
|
Book value |
36,000 |
|
Fair value (48,000+12,000) |
60,000 |
|
Gain (60,000-36,000) |
24,000 |
Gain to be recognized = $24,000*(12,000/60,000)
= $4,800
