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A machine cost $120,000, has annual depreciation of $20,000, and has accumulated depreciation of $90,000 on December 31, 2010.On April 1, 2011, when the machine has a fair value of $27,500, it is exchanged for a machine with a fair value of $135,000 and the proper amount of cash is paid.The exchange has commercial substance.
-The gain to be recorded on the exchange is

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Quizplus · Accepted Answer

The gain on the exchange is the difference between the fair value of the new machine ($135,000) and the book value of the old machine ($120,000 - $90,000 = $30,000). The gain is $105,000 - $30,000 = $2,500.

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