Glen Inc. and Armstrong Co. have an exchange with no commercial substance. The asset given up by Glen Inc. has a book value of $12,000 and a fair market value of $15,000. The asset given up by Armstrong Co. has a book value of $20,000 and a fair market value of $19,000. Boot of $4,000 is received by Armstrong Co.
-What amount should Glen Inc. record for the asset received?

Question

Quizplus · Accepted Answer

In an exchange with no commercial substance, the asset received is recorded at the book value of the asset given up plus any cash paid or minus any cash received. Glen Inc. gives up an asset with a book value of $12,000 and receives no cash, so the asset received is recorded at $12,000. However, since Armstrong Co. receives $4,000 boot, Glen Inc. effectively pays $4,000, making the recorded value $12,000 + $4,000 = $16,000.

Glen Inc and Armstrong Co