Question

Ringler Corporation exchanges one plant asset for a similar plant asset and gives cash in the exchange. The exchange is not expected to cause a material change in the future cash flows for either entity. If a gain on the disposal of the old asset is indicated, the gain will

a. be reported in the Other income and expense section of the income statement.
b. effectively reduce the amount to be recorded as the cost of the new asset.
c. effectively increase the amount to be recorded as the cost of the new asset.
d. be credited directly to the retained earnings account.

Answer 1

In an exchange of plant assets where a gain is indicated, the gain will effectively reduce the amount to be recorded as the cost of the new asset.

Step-by-step explanation:

When Ringler Corporation exchanges one plant asset for a similar plant asset and gives cash in the exchange, if a gain on the disposal of the old asset is indicated, the gain will effectively reduce the amount to be recorded as the cost of the new asset. This is because the gain is considered a type of income and is added to the cash paid in the exchange to determine the total cost of the new asset.