Colt Football Co. had a player contract with Watts that is recorded in its books at $5,600,000 on July 1, 2014. Day Football Co. had a player contract with Kurtz that is recorded in its books at $7,000,000 on July 1, 2014. On this date, Colt traded Watts to Day for Kurtz and paid a cash difference of $700,000. The fair value of the Kurtz contract was $8,400,000 on the exchange date. The exchange had no commercial substance. After the exchange, the Kurtz contract should be recorded in Colt's books at
A) $6,300,000.
B) $7,000,000.
C) $7,700,000.
D) $8,400,000.

Question

Quizplus · Accepted Answer

Since the exchange lacks commercial substance, the Kurtz contract should be recorded at the book value of the Watts contract plus the cash paid, which is $5,600,000 + $700,000 = $6,300,000.