Question

A company bought a new display case for $42,000 and was given a trade-in of $2,000 on an old display case, so the company paid $40,000 cash with the trade-in. The old case had an original cost of $37,000 and accumulated depreciation of $34,000. If the transaction has commercial substance, the company should record the new display case at:

Answer 1

$42,000

Step-by-step explanation:

If the transaction has commercial substance, the company should record the new display case at the original cost or fair value of the asset.

The fair value of the asset is $42,000 which involves

= Cash paid for display case + trade-in old display case

= $40,000 + $2,000

= $42,000

All other information which is given is not relevant. Hence, ignored it