Question

Pensacola Inc. exchanged old equipment for new equipment in two exchange transactions. Each transaction has commercial substance.

Old Equipment
Book Value Fair Value Cash Received
Equipment A $74,000 $81,300 11,300
Equipment B $61,600 $54,800 10,300

For Equipment B, Pensacola would record a gain/(loss) of:__________

a. $5,300
b. $(6,800)
c. $(7,800)
d. none of these answer choices are correct

Answer 1

Answer:

b. $(6,800)

Explanation:

The computation of the gain or loss recorded for the equipment B is shown below:

Fair value of old equipment                $54,800

Less: book value of old equipment    $61,600

Pensacola would record a gain /(loss) (-$6,800)

Since the book value is more than the fair value so the Pensacola would received a loss of -$6,800

Hence, the correct option is B.