Calaveras Tire exchanged machinery for two pickup trucks. The book value and fai
ID: 2505141 • Letter: C
Question
Calaveras Tire exchanged machinery for two pickup trucks. The book value and fair value of the machinery were $40,000 (original cost of $95,000 less accumulated depreciation of $55,000) and $27,000, respectively. To equalize fair values, Calaveras paid $9,000 in cash.
Assume the exchange has commercial substance. How much gain or loss will the company recognize on the exchange?
Calaveras Tire exchanged machinery for two pickup trucks. The book value and fair value of the machinery were $40,000 (original cost of $95,000 less accumulated depreciation of $55,000) and $27,000, respectively. To equalize fair values, Calaveras paid $9,000 in cash.
Explanation / Answer
At what amount will Calaveras value the pickup trucks?
VALUE OF PICKUP TRUCKS = FAIR VALUE OF MACHINERY + CASH PAID
=27000+9000
=36000
Assume the exchange has commercial substance. How much gain or loss will the company recognize on the exchange?
LOSS THAT THE COMPANY WOULD RECOGNISE = BOOK VALUE OF MACHINERY- FAIR VALUE OF MACHINERY
=40000 - 27000
=13000