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

Question

Quizplus · Accepted Answer

The carrying value of the old machine was $30,000 ($100,000 cost - $70,000 accumulated depreciation). Since the corporation exchanged it for a new machine with a market value of $120,000 and paid cash of $100,000, the total consideration transferred was $120,000. Therefore, there is a loss of $10,000 ($120,000 - $110,000).

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