Final answer:
Timmons Company should recognize a gain of $240,000 on the exchange of machinery, calculated as the difference between the fair value of the consideration received ($600,000) and the book value of the machinery given up ($360,000).
Step-by-step explanation:
To determine the gain that Timmons Company should recognize on the exchange of machinery, we need to compare the book value of the machinery given up with the fair value of the consideration received. The machinery had a book value of $360,000 and was traded for another machine with a fair value of $540,000 plus $60,000 in cash.
The total fair value of what Timmons Company received is:
$540,000 + $60,000 = $600,000
The gain on the exchange is the difference between the fair value of what was received and the book value of the machinery that was given up.
Gain = Fair value received - Book value of machine given up
Gain = $600,000 - $360,000
Gain = $240,000
Therefore, the gain Timmons Company should recognize on the exchange is $240,000, which corresponds to option D.