If an asset is exchanged for a similar asset,a gain results:

Question

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When an asset is exchanged for a similar asset, a gain results when the book value of the old asset is less than what is received for the trade-in allowance. This is because the amount received for the trade-in allowance is greater than the book value, resulting in a gain. Option (A) is incorrect because if the book value of the old asset is greater than what is received for the trade-in allowance, a loss would result. Option (C) is incorrect because the accumulated depreciation is not relevant to the gain or loss on the exchange, only the book value of the asset matters. Option (D) is incorrect because option (B) is the correct answer.

If an Asset Is Exchanged for a Similar Asset,a Gain