Question

A machine cost $1,200,000, has annual depreciation of $200,000, and has accumulated depreciation of $950,000 on December 31, 2020. On April 1, 2021, when the machine has a fair value of $275,000, it is exchanged for a machine with a fair value of $1,350,000 and the proper amount of cash is paid. The exchange had commercial substance. The new machine should be recorded at:

a. $0.b. $25,000c. $50,000d. $150,000

Answer 1

The correct answer is $1,350,000.

Step-by-step explanation:

A machine which has a value of $120,000 is exchanged with a machine whose fair value is $1,350,000. Therefore, the new machine will be cost to $1,350,000 and will be recorded at this value because the old machine is exchanged with the new one at the value of $1,350,000.The machine is recorded at the fair value in the books.

Note:

The options which are provided here are of different requirement of this same question. So, I am mentioning the correct amount.