A machine that was purchased for $100,000 has an accumulated depreciation of $70,000 as of the current date. The company exchanges the machine for a new machine. The new machine has a market value of $120,000 and company pays cash of $100,000. Assume the exchange has commercial substance. What is the result of this exchange?

Question

Quizplus · Accepted Answer

The carrying amount of the old machine is $30,000 ($100,000 - $70,000). Since the new machine has a market value of $120,000, but the company only paid $100,000 cash, the cost of the exchange is $20,000 ($120,000 - $100,000). The loss on the exchange is therefore $10,000 ($30,000 - $20,000).

A Machine That Was Purchased for $100,000 Has an Accumulated