Question

Alamos Co. exchanged equipment and $18,200 cash for similar equipment. The book value and the fair value of the old equipment were $81,100 and $91,900, respectively. Assuming that the exchange lacks commercial substance, Alamos would record a gain/(loss) of:

Answer 1

Answer:

$0

Explanation:

Alamos Co. exchanged equipments and $18,200 cash for a similar equipment

The book value of the old equipment is $81,100

The fair value of the old equipment is $91,900

The gain/loss recorded by Alamos can be calculated as follows

= Fair value-book value

= $91,900-$81,100

= $10,800

= $10,800

But since the exchange lacks a commercial substance then, no amount of gain or loss will be recognized/recorded.

Hence Alamos Corporation recorded a gain of $0

Answer 2

Gain or loss is the difference amount between the actual cost of the goods or services and the fair market value of the goods or services at a particular time.  It is recorded in the profit or loss statement at the end of the financial period.

For the given case Alamos Co. will record zero amount of gain or loss.

Computation:

Computation of gain or loss from the exchange:

$\rm{Gain \;or \;Loss}=\rm{Fair \;Value}-{Book \;Value}\\=\ 91,900-\ 81,100\\=\ 10,800$

The actual amount of gain from the exchange of equipment is $10,800 but since there is a lack of commercial substance, then as per the rules the gain or loss recognized cannot be recorded in the books.

To know more about recognized gain or loss from exchange function, refer to the link:

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