A lathe priced at a fair market value of $124,000 is acquired in a transaction that has commercial substance by trading in a similar lathe and paying cash for the difference between the trade-in allowance of $45,000 and the price of the new lathe. Assuming that the book value of the lathe traded in is $36,000, what is the gain or loss on the exchange?
A) gain of $9,000
B) gain of $12,000
C) loss of $9,000
D) loss of $12,000

Question

Quizplus · Accepted Answer

Gain on Sale = Cost of new lathe - Cash paid (Purchase price - trade-in allowance) - book value of the old lathe = $124,000 - ($124,000 - $45,000) - $36,000 = $9,000

A Lathe Priced at a Fair Market Value of $124,000