Romney Company exchanged one business automobile for a replacement automobile. The old automobile had an original cost of $40,000, a book value of $16,000, and a fair value of $24,000 when exchanged. In addition, Romney paid $9,000 cash to acquire the replacement automobile. The list price of the replacement automobile was $45,000. The replacement will help generate significantly greater cash flows in the business. At what amount should the replacement automobile be recorded for financial accounting purposes?

Question

Quizplus · Accepted Answer

The replacement automobile should be recorded at the fair value of the asset given up ($24,000) plus the cash paid ($9,000), totaling $33,000.

Romney Company Exchanged One Business Automobile for a Replacement Automobile