In January 2014,Bevis Company exchanged an old machine,with a book value of $256,000 and a fair value of $260,000,and paid $40,000 cash for a similar used machine having a fair value of $300,000.The exchange lacked commercial substance.At what amount should the machine acquired in the exchange be recorded on Bevis' books?
A) $256,000
B) $296,000
C) $300,000
D) $304,000

Question

Quizplus · Accepted Answer

Since the exchange lacked commercial substance, Bevis should record the new machine at the book value of the old machine plus any cash paid or received. Therefore, the machine acquired in the exchange should be recorded at $256,000 (book value of old machine) + $40,000 (cash paid) = $296,000.

In January 2014,Bevis Company Exchanged an Old Machine,with a Book