Performance Stage Company had a professional contract with Actor #1 that was recorded in its accounting records at $300, 000.Johnson Company had a contract with Actor #2 that was recorded in its accounting records at $280, 000.Performance traded Actor #1 to Johnson for Actor #2 by exchanging the actors' contracts.The fair value of each contract was $320, 000.What amount should be shown in the accounting records after the exchange of actor contracts? $\begin{array}{lll}
&\text {Performance}&\text {Johnson}\
\text { I. } & \$ 280,000 & \$ 280,000 \
\text { II. } & \$ 280,000 & \$ 300,000 \
\text { III. } & \$ 300,000 & \$ 280,000 \
\text { IV. } & \$ 320,000 & \$ 320,000
\end{array}$

Question

Quizplus · Accepted Answer

After the exchange, Performance Stage Company should record Actor #2's contract at fair value of $320,000 and recognize a gain of $20,000 ($320,000 fair value - $300,000 book value). Johnson Company should record Actor #1's contract at fair value of $320,000 and recognize a loss of $40,000 ($280,000 book value - $320,000 fair value). Therefore, the accounting records should show a net increase of $20,000 ($320,000 fair value of Actor #2's contract - $300,000 book value of Actor #1's contract). This option is only available in choice D.

Performance Stage Company Had a Professional Contract with Actor #1