City Auto Parts recently traded in store fixtures. The exchange had commercial substance. The old fixtures had a cost of $48,000 and accumulated depreciation of $14,000. City paid $101,000 for the new store fixtures. These new fixtures had a market value of $117,000. There is a loss of $18,000 on this exchange.

Question

Quizplus · Accepted Answer

The loss on the exchange is calculated as the difference between the book value of the old fixtures ($34,000 = $48,000 - $14,000) and the cost of the new fixtures ($101,000), which is $67,000. Therefore, the loss is $18,000 = $67,000 - $117,000. Since the exchange had commercial substance, the loss should be recognized in the financial statements.

City Auto Parts Recently Traded in Store Fixtures