Question

A company exchanged land with an appraised value of $50,000 and an original cost of $20,000 for machinery with a fair value of $55,000. Assuming that the transaction has commercial substance, what is the gain on the exchange?

Answer 1

The correct answer is $30,000

Step-by-step explanation:

The term commercial substance, refers that all the gains or losses of a transaction, are evaluated at the fair value. In this case, the fair market value of the asset given up was $50,000 and the gain on the exchange is $30,000. Because $50,000 - $20,000 (original cost) = $30,000