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A machine cost $120,000, has annual depreciation of $20,000, and has accumulated depreciation of $90,000 on December 31, 2006.On April 1, 2007, when the machine has a market value of $27,500, it is exchanged for a machine with a fair value of $135,000 and the proper amount of cash is paid.The exchange lacked commercial substance.
-The gain to be recorded on the exchange is

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A machine cost $120,000, has annual depreciation of $20,000, and has accumulated depreciation of $90,000 on December 31, 2006.On April 1, 2007, when the machine has a market value of $27,500, it is exchanged for a machine with a fair value of $135,000 and the proper amount of cash is paid.The exchange lacked commercial substance.
-The gain to be recorded on the exchange is

Quizplus · Accepted Answer

Since the exchange lacks commercial substance, no gain is recognized. The gain is deferred and the new asset is recorded at the book value of the old asset plus any cash paid.

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