The correct answer is $29,000
To calculate the gain or loss on the exchange when it has commercial substance, you compare the fair value of what you gave up (old equipment) with the book value of what you received (new equipment).
Gain or Loss=Fair Value of New Equipment−Book Value of Old Equipment
In this case:
Gain or Loss=(Fair Value of Old Equipment+Cash Paid)−Book Value of Old Equipment
Gain or Loss=($91,600+$18,200)−$80,800
Gain or Loss=$109,800−$80,800
Gain or Loss=$29,000
So, the correct answer is $29,000
Question
A company exchanged equipment and $18,200 cash for similar equipment. The book value and the fair value of the old equipment were $80,800 and $91,600, respectively.
Assuming that the exchange has commercial substance, the company would record a gain/(loss) of:
Multiple Choice
$10,800.
$(10,800).
$0.
$29,000