Reed Co. exchanged nonmonetary assets with Wilton Co. No cash was exchanged and the exchange had no commercial substance. The carrying amount of the asset surrendered by Reed exceeded both the fair value of the asset received and Wilton's carrying amount of that asset. Reed should recognize the difference between the carrying amount of the asset it surrendered and

Question

Quizplus · Accepted Answer

When the carrying amount of the asset surrendered exceeds the fair value of the asset received in an exchange that lacks commercial substance, the difference is recognized as a loss. This is because the transaction results in a decrease in future economic benefits without any compensating increase from the asset received.

Reed Co Exchanged Nonmonetary Assets with Wilton Co