the information relative to an exchange of assets by Stanton Company. The exchan

Question

the information relative to an exchange of assets by Stanton Company. The exchange lacks commercial substance Old Equipment Book Value Fair Value Casei $150,000 $245,000 $135,000 $45,000 $21,000 For each of the two cases, answer the following questions: How much should the company record for the new equipment? How much gain or loss should the firm recognize? Indicate whether it is a gam or loss. If no gain or loss is recognized, state "0." Case I: Record equipment at Record a gain (loss) of Case II: Record equipment at_Record a gain (loss) of

Explanation / Answer

Note for understanding : In case where exchange of assets lack commercial substance

Case 1

Record Equipment at $290,000 ; Record a gain (loss) of 0

Explanation : Since FV > than BV ,thus Cost of Equipment = $225,000+$45,000 = $290,000 . The gain is not to be recorded.

Case 2

Record Equipment at $156,000 ; Record a gain (loss) of ($15,000)

Explanation : Since FV < than BV ,thus Cost of Equipment = $135,000+$21,000 = $156,000 . The loss to be recorded = $150,000 - $135,000 ($15,000).

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