Question Details

The gain to be recognized from the exchange 



1.	On January 2, 2010, Rapid Delivery Company traded in an old delivery truck for a newer model. The exchange lacked commercial substance. Data relative to the old and new trucks follow:
Old Truck
Original cost	$24,000
Accumulated depreciation as of January 2, 2010	16,000
Average published retail value	7,000
New Truck
List price	$40,000
Cash price without trade-in	36,000
Cash paid with trade-in	30,000
What should be the cost of the new truck for financial accounting purposes?
a.	$30,000.
b.	$36,000.
c.	$38,000.
d.	$40,000.

	2.	On December 1, 2010, Kelso Company acquired a new delivery truck in exchange for an old delivery truck that it had acquired in 2007. The old truck was purchased for $35,000 and had a book value of $13,300. On the date of the exchange, the old truck had a fair value of $14,000. In addition, Kelso paid $45,500 cash for the new truck, which had a list price of $63,000. The exchange lacked commercial substance. At what amount should Kelso record the new truck for financial accounting purposes?
a.	$45,500.
b.	$58,800.
c.	$59,500.
d.	$63,000.

Use the following information for questions 3 and 4.
A machine cost $120,000, has annual depreciation of $20,000, and has accumulated depreciation of $90,000 on December 31, 2010. On April 1, 2011, when the machine has a fair value of $27,500, it is exchanged for a machine with a fair value of $135,000 and the proper amount of cash is paid. The exchange lacked commercial substance.
	3.	The gain to be recorded on the exchange is
a.	$0.
b.	$2,500 loss.
c.	$5,000 gain.
d.	$15,000 gain.
	4.	The new machine should be recorded at
a.	$107,500.
b.	$122,500.
c.	$132,500.
d.	$135,000.

Use the following information for questions 5 and 6.

Equipment that cost $66,000 and has accumulated depreciation of $30,000 is exchanged for equipment with a fair value of $48,000 and $12,000 cash is received. The exchange lacked commercial substance.

	5.	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.

	6.	The new equipment should be recorded at
a.	$48,000.
b.	$36,000.
c.	$30,000.
d.	$28,800.





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