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Equipment that cost $66,000 and has accumulated depreciation of $30,000 is exchanged for equipment with a fair value of $48,000 and $12,000 cash is received.The exchange lacked commercial substance.
-The gain to be recognized from the exchange is

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Equipment that cost $66,000 and has accumulated depreciation of $30,000 is exchanged for equipment with a fair value of $48,000 and $12,000 cash is received.The exchange lacked commercial substance.
-The gain to be recognized from the exchange is

Quizplus · Accepted Answer

When an exchange lacks commercial substance and cash is received, the gain recognized is calculated as the cash received divided by the total fair value received (cash plus new equipment) multiplied by the total gain. Here, the total gain is $12,000 (fair value of new equipment $48,000 + cash $12,000 - book value $36,000). The recognized gain is $12,000 cash / $60,000 total fair value received * $12,000 total gain = $4,800.

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