** REQUIRED: 1) Determine the following: a) fair value of the equipment that Red

Question

** REQUIRED:

1) Determine the following:

a) fair value of the equipment that Reds Co received (new).
b) amount of the potential gain.
c) accumulated depreciation of the equipment that Reds Co gave (old).
d) amount that Reds Co records for the equipment received (new).

Reds Co exchanged some equipment with cost of $980,000 and a fair value of $640,000 for some new equipment and $120,000 cash boot. Since the exchange LACKS commercial substance, Reds Co could only recognize $15,000 of the potential gain.

** REQUIRED:

1) Determine the following:

a) fair value of the equipment that Reds Co received (new).
b) amount of the potential gain.
c) accumulated depreciation of the equipment that Reds Co gave (old).
d) amount that Reds Co records for the equipment received (new).

Explanation / Answer

a) fair value of the equipment that Reds Co received (new) = fair value of Old Assets + Cash

= $ 640,000 + $ 120,000

= $ 760,000

b) amount of the potential gain = $ 15,000 (As given in the question because no further information for claculation of the same provided)

c) accumulated depreciation of the equipment that Reds Co gave (old) = Cost - Fair Value

= $ 980,000 - $ 640,000

  = $ 340,000

d) amount that Reds Co records for the equipment received (new) = fair value of Old Assets + Cash

= $ 640,000 + $ 120,000

= $ 760,000

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