Use the following information for questions 110 and 111.
Equipment that cost $220,000 and has accumulated depreciation of $100,000 is exchanged for equipment with a fair value of $160,000 and $40,000 cash is received. The exchange lacked commercial substance.
-The gain to be recognized from the exchange is

Question

Quizplus · Accepted Answer

The gain to be recognized from the exchange is calculated as follows:
Fair value of new equipment + cash received - book value of old equipment = $160,000 + $40,000 - ($220,000 - $100,000) = $80,000.
Since the exchange lacked commercial substance, the gain should be deferred and recognized over the remaining useful life of the new equipment. Therefore, the gain to be recognized immediately is the portion that represents the cash received, which is $40,000/2 = $20,000. However, none of the answer choices match this calculation. The closest answer is A, which represents half of the total gain ($40,000), but doesn't consider the fact that only the cash portion is recognized immediately. Therefore, the best choice is A.

Use the Following Information for Questions 110 and 111