Final answer:
The recognized gain in a non-commercial substance exchange where cash is received is calculated by dividing cash received by the total of cash received plus the fair value of the asset received. Option C is correct answer.
Step-by-step explanation:
The gain recognized in an exchange that lacks commercial substance and in which cash is received is computed by the following formula: C. cash received divided by the total of cash received plus fair value of the asset received. This calculation is part of the accounting rules that determine how to recognize gains on exchanges where the company's economic position isn't considered to improve significantly as a result of the transaction, hence lacking commercial substance.
Understanding this concept is important in the context of financial accounting, particularly when considering gains or losses from exchanges in a business setting.
Both cash and the other assets involved in the transaction are important to the calculation. For example, if a financial investor initially buys stock at a certain price and later sells it at a higher price, the difference between the selling price and the buying price is the capital gain, a concept similar to recognizing gains in exchanges.