Question

Calaveras Tire exchanged equipment for two pickup trucks. The book value and fair value of the equipment given up were $32,000 (original cost of $83,000 less accumulated depreciation of $51,000) and $42,000, respectively. Assume Calaveras paid $9,000 in cash and the exchange lacks commercial substance.
(1) At what amount will Calaveras value the pickup trucks?
(2) How much gain or loss will the company recognize on the exchange?

Answer 1

Answer:

1. $41,000

2. No loss or gain

Explanation:

1. computation of the value of the pickup trucks is shown below:

= Original cost of pickup trucks - accumulated depreciation + cash paid

= $83,000 - $51,000 + $9,000

= $41,000

The fair value would not be considered. Hence, ignored it

2. Since the exchange have no commercial substance, so there would not be any gain or loss recognized on this exchange