Question

A company exchanges its old office equipment and $80,000 for new office equipment. The old office equipment has a book value of $56,000 and a fair value of $40,000 on the date of the exchange. The cost of the new office equipment would be recorded at

a. $136,000.
b. $96,000.
c. $120,000.
d. cannot be determined.

Answer 1

The cost of the new office equipment would be recorded at $96,000.

Step-by-step explanation:

The cost of the new office equipment would be recorded at $96,000.

The new office equipment is being exchanged for the old office equipment and $80,000. The old equipment has a book value of $56,000 and a fair value of $40,000. The cost of the new equipment is calculated by subtracting the fair value of the old equipment from the total value of the exchange. In this case, $80,000 - $40,000 = $40,000.

The cost of the new office equipment would then be the fair value of the old equipment plus the cash exchanged, which is $40,000 + $40,000 = $80,000. Therefore, the cost of the new office equipment would be $80,000, which is option b.