Question

Swifty Football Co. had a player contract with Watts that is recorded in its books at $8340000 on July 1, 2020. Blossom Football Co. had a player contract with Kurtz that is recorded in its books at $10700000 on July 1, 2020. On this date, Swifty traded Watts to Blossom for Kurtz and paid a cash difference of $1070000. The fair value of the Kurtz contract was $12600000 on the exchange date. The exchange had no commercial substance. After the exchange, the Kurtz contract should be recorded in Swifty's books at:_______.

Answer 1

Answer:

"$9,410,000" is the appropriate answer.

Explanation:

Given that,

Fair value,

= $12600000

Cash difference,

= $1070000

Books value before transaction,

= $8340000

Now,

The deferred gain will be:

= $(Fair \ value-Cash \ difference)-Books \ value \ before \ transaction$

= $(12600000 -1070000)-8340000$

= $11530000 -8340000$

= $3,190,000$ ($)

hence,

The Kurtz contact value will be:

= Fair value - Deferred gain

= $12600000-3190000$

= $9,410,000$ ($)