When an exchange of similar assets involves a gain,
A) the recorded amount of the new asset is the cost of the old asset plus any cash paid.
B) the recorded amount of the new asset is the net book value of the old asset plus any cash paid.
C) the recorded amount of the new asset is its fair market value less any cash paid.
D) None of these are true.

Question

Quizplus · Accepted Answer

When an exchange of similar assets involves a gain, the recorded amount of the new asset is the net book value of the old asset plus any cash paid. This is because the gain is equal to the fair market value of the new asset minus the net book value of the old asset. By recording the new asset at its net book value, the gain is recognized in the accounting records. Any cash paid is added to the net book value to adjust for the value of the new asset received.

When an Exchange of Similar Assets Involves a Gain