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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 new equipment should be recorded at

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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 new equipment should be recorded at

Quizplus · Accepted Answer

When an exchange lacks commercial substance and cash is received, the new equipment is recorded at the book value of the old equipment plus any cash received. The book value of the old equipment is $66,000 - $30,000 = $36,000. The cash received is $12,000. The new equipment is recorded at $36,000 - $12,000 = $24,000. However, since the fair value of the new equipment is $48,000, the gain is recognized proportionally: ($12,000 / ($12,000 + $48,000)) * ($48,000 - $36,000) = $2,400. Therefore, the new equipment is recorded at $36,000 + $2,400 = $28,800.

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