Final answer:
The accounting treatment of an asset exchange involving book value and fair value. The book value is the recorded cost minus depreciation, while the fair value is the market value at the time of exchange. Differences between these values may result in a gain or loss on the transaction.
Step-by-step explanation:
The situation described involves an exchange transaction in accounting, where a company trades an asset (in this case, equipment) for another asset (two pickup trucks). When such a transaction occurs, it is necessary to determine the book value and fair value of the equipment being given up.
The book value is the value of the equipment as recorded in the company's books, which generally reflects the cost of the equipment minus any accumulated depreciation. On the other hand, the fair value represents the market value of the equipment at the time of the exchange, which may differ from the book value. The accounting treatment for the exchange will depend on the relationship between the book value and the fair value and whether any commercial substance exists in the exchange. If the fair value is used as the basis for recording the new asset, any difference between the fair value of the equipment given up and its book value would be recognized as a gain or loss in the company's financial statements.