Reba Company received $60,000 in cash and used equipment with a fair value of $160,000 from Fargo Corporation in exchange for Reba's existing equipment, which had a fair value of $210,000 and an undepreciated cost of $170,000 recorded on its books. The transaction was undertaken because Reba was revising its market strategy and planned to reduce the use of this type of equipment in its production. How much gain should Reba recognize on this exchange and at what value should the acquired equipment be recorded, respectively?

Question

Quizplus · Accepted Answer

Reba should recognize a gain of $40,000, calculated as the fair value of the equipment given up ($210,000) minus its book value ($170,000). The acquired equipment should be recorded at $150,000, which is the fair value of the equipment received ($160,000) minus the cash received ($60,000) plus the fair value of the equipment given up ($210,000).

Reba Company Received $60,000 in Cash and Used Equipment with a Fair