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 ____

group of answer choices
A. $136,000.
B. cannot be determined.
C. $96,000.
D. $120,000.

Answer 1

The cost of the new office equipment would be recorded at $96,000. When a company exchanges its old office equipment and cash for new office equipment, the cost of the new equipment is determined by the fair value of the old equipment plus any additional cash paid. In this case, the fair value of the old office equipment is $40,000, and the additional cash paid is $80,000.

Step-by-step explanation:

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

When a company exchanges its old office equipment and cash for new office equipment, the cost of the new equipment is determined by the fair value of the old equipment plus any additional cash paid. In this case, the fair value of the old office equipment is $40,000, and the additional cash paid is $80,000. Therefore, the total cost of the new office equipment is $40,000 + $80,000 = $120,000.

However, since the book value of the old equipment is $56,000, the company will also need to record a gain or loss on the disposal of the old equipment. The gain or loss is calculated by subtracting the book value of the old equipment from the fair value of the old equipment: $40,000 - $56,000 = -$16,000. Since the company is receiving less cash for the old equipment than its book value, it will record a loss of $16,000. Therefore, the cost of the new office equipment is $120,000 - $16,000 = $96,000.