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Gabrielle Inc.and Lucci Company have an exchange with no commercial substance.The asset given up by Gabrielle has a book value of €120,000 and a fair value of €135,000.The asset given up by Lucci has a book value of €220,000 and a fair value of €200,000.Boot of €65,000 is received by Lucci.
-The journal entry made by Lucci to record the exchange will include

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Lucci Company is receiving an asset with a book value of €220,000 and a fair value of €200,000, which indicates a loss of €20,000. As this exchange has no commercial substance, boot of €65,000 is received by Lucci, which is a cash inflow and should be recorded with a credit to Cash. Therefore, the journal entry made by Lucci will include a debit to Loss on Exchange for €20,000 and a credit to Cash for €65,000. There is no credit to Equipment as Lucci is not acquiring an asset; it is exchanging an asset. Option A is incorrect as there is no gain on exchange.

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