Question

Bayberry Co. has an asset with a cost of $200,000 and accumulated depreciation of $120,000. Driftwood Co. has an asset with a cost of $250,000 and accumulated depreciation of $160,000. Both assets have a fair value of $100,000. Bayberry and Driftwood find it mutually advantageous to exchange assets, and the exchange results in improved future cash flows for both companies. What amount, if any, is Bayberry's gain on the exchange?

Answer 1

gain on exchange 20,000

Step-by-step explanation:

The transaction has commercial substance so it will be qualify to recognize gains or losses

Bayberry will write-off the previous asset and enter into his book the new sset at fair value, recognizing a gain or loss:

new asset 100,000

acc depreciation 120,000

previous long-term asset 200,000

gain on exchange 20,000

It will recognize a gain for 20,000 to balance the entry.