In January 2011, Butz Company exchanged an old machine, with a book value of $156,000 and a fair value of $140,000, and paid $40,000 cash for a similar used machine having a list price of $200,000. The exchange had commercial substance. At what amount should the machine acquired in the exchange be recorded on Butz's books?
A) $200,000
B) $196,000
C) $184,000
D) $180,000

Question

Quizplus · Accepted Answer

To determine the cost of the new machine, we need to take the fair value of the old machine and add in the cash paid. Therefore, the cost of the new machine is: $140,000 + $40,000 = $180,000. The list price of the new machine is not relevant in this calculation. Thus, the machine acquired in the exchange should be recorded at $180,000 on Butz's books. Therefore, the correct choice is D.

In January 2011, Butz Company Exchanged an Old Machine, with a Book