Final answer:
The company should record a gain of $8,800, which is the difference between the fair value and the book value of the old equipment exchanged, as the exchange has commercial substance.
Step-by-step explanation:
The question involves determining the gain or loss on the exchange of equipment for accounting purposes. When a company exchanges old equipment with a book value of $81,800 and a fair value of $90,600, and also pays additional cash of $17,500 for new, similar equipment, the difference between the fair value of the old equipment and its book value represents the gain or loss on the exchange.
Accounting profit is the total revenues minus explicit costs, and similarly, the gain or loss from such an exchange is the difference between the fair value and the book value of the old equipment.
In this case, the fair value of the old equipment ($90,600) is higher than its book value ($81,800), indicating a gain of $8,800 ($90,600 - $81,800). Since the exchange has commercial substance, this gain is recognized. Therefore, the company would record a gain of $8,800.
Correct answer: a. $8,800 gain.