Question Details

The exchange lacked commercial substance



Ex. 1—Nonmonetary exchange.
A machine cost $80,000, has annual depreciation expense of $16,000, and has accumulated depreciation of $40,000 on December 31, 2010. On April 1, 2011, when the machine has a fair value of $32,000, it is exchanged for a similar machine with a fair value of $96,000 and the proper amount of cash is paid. The exchange lacked commercial substance.

Instructions
Prepare all entries that are necessary at April 1, 2011.

					

Ex. 2—Nonmonetary exchange.
Equipment that cost $80,000 and has accumulated depreciation of $63,000 is exchanged for equipment with a fair value of $32,000 and $8,000 cash is received. The exchange lacked commercial substance.

Instructions
(a)	Show the calculation of the gain to be recognized from the exchange.
(b)	Prepare the entry for the exchange. Show a check of the amount recorded for the new equipment.




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