Question

Hardin Company received $80,000 in cash and a used computer with a fair value of $240,000 from Page Corporation for Hardin Company's existing computer having a fair value of $320,000 and an undepreciated cost of $300,000 recorded on its books. The transaction has commercial substance. How much gain should Hardin recognize on this exchange, and at what amount should the acquired computer be recorded, respectively?

Answer 1

Hardin Company does not recognize any gain in this exchange. The acquired computer should be recorded at its fair value.

Step-by-step explanation:

In this exchange, Hardin Company received $80,000 in cash and a used computer with a fair value of $240,000 from Page Corporation in exchange for their existing computer. To determine the gain recognized by Hardin Company, we need to compare the fair value of the old computer (which is $320,000) to its undepreciated cost (which is $300,000). Since the fair value exceeds the undepreciated cost, no gain is recognized.

As for the acquired computer, it should be recorded at the fair value of $240,000.