Question

Pensacola Inc exchanged old equipment for new equipment in two exchange transactions. Each transaction has commercial substance Old equipment caseBook Value Fair Value ReceiveEquipment A $73,900 $80,100 $12,400Equipment B $60,300 $55,000 $10,200For Equipment A, Pensacola would record the new equipment ata. $69,200b. $67,700c. $55,200d. $ 71,950

Answer 1

Answer:

The correct option is b. $67,700.

Explanation:

Note: The data in the question are merged. They are therefore sorted before answering the question. See the attached pdf file for the question and the sorted data.

In accounting, when an old equipment is exchanged for a new equipment in a transaction that has commercial substance, the new equipment will be recorded at the fair value less any cash received.

Therefore, the amount at which Pensacola would record the new equipment A can be determined as follows:

Particulars                                                $    

Fair value of Equipment A                 80,100

Cash received                                   (12,400)

Amount to record equipment A      67,700  

Therefore, Pensacola would record the new equipment for Equipment A at $67,700. And, the correct option is b. $67,700.