Timmons Company traded machinery with a book value of $360,000 and a fair value of $600,000. It received in exchange from Lewis Company a machine with a fair value of $540,000 and cash of $60,000. Lewis's machine has a book value of $570,000. What amount of gain should Timmons recognize on the exchange (assuming lack of commercial substance)?

Question

Quizplus · Accepted Answer

Timmons should recognize a gain of $24,000 on the exchange. The fair value of the machinery received is $540,000, and the book value of the machinery given up is $360,000. The difference between these two amounts is $180,000. However, Timmons also received cash of $60,000 in the exchange. This reduces the gain to $24,000.

Timmons Company Traded Machinery with a Book Value of $360,000