Romney Company exchanged one business automobile for another business automobile. The old automobile had an original cost of $40,000, an undepreciated cost of $16,000, and a market value of $24,000 when exchanged. In addition, Romney paid $9,000 cash for the replacement automobile. The list price of the replacement automobile was $45,000. The replacement will help generate significantly greater cash flows in the business. At what amount should the replacement automobile be recorded for financial accounting purposes?

Question

Quizplus · Accepted Answer

The replacement automobile should be recorded at the fair value of the old automobile plus any cash paid. The fair value of the old automobile is $24,000, and the cash paid is $9,000, totaling $33,000.

Romney Company Exchanged One Business Automobile for Another Business Automobile