Equipment was acquired for $208,000 and has accumulated depreciation of $85,000. The business exchanges this equipment for new equipment. The new equipment has a market value of $307,000 and the business pays $56,000 cash. Assume the exchange has commercial substance. The exchange results in a ________.

Question

Quizplus · Accepted Answer

To find the gain or loss on exchange, we need to compare the carrying value (original cost less accumulated depreciation) of the old equipment with the fair value of the new equipment received and any cash paid/received. 
Carrying value of old equipment = $208,000 - $85,000 = $123,000
Fair value of new equipment received = $307,000
Cash paid = $56,000
Therefore, the total value of consideration given is $307,000 + $56,000 = $363,000
Since the fair value of new equipment ($307,000) is greater than the carrying value of old equipment ($123,000), there is a gain of $307,000 - $123,000 = $184,000. 
This gain should be recognized in the financial statements of the business. Therefore, the answer is (C) gain of $128,000.

Equipment Was Acquired for $208,000 and Has Accumulated Depreciation of $85,000