Question

Swifty Football Co. had a player contract with Watts that is recorded in its books at $8340000 on July 1, 2020. Blossom Football Co. had a player contract with Kurtz that is recorded in its books at $10700000 on July 1, 2020. On this date, Swifty traded Watts to Blossom for Kurtz and paid a cash difference of $1070000. The fair value of the Kurtz contract was $12600000 on the exchange date. The exchange had no commercial substance. After the exchange, the Kurtz contract should be recorded in Swifty's books at:_______.

Answer 1

"$9,410,000" is the appropriate answer.

Step-by-step explanation:

Given that,

Fair value,

= $12600000

Cash difference,

= $1070000

Books value before transaction,

= $8340000

Now,

The deferred gain will be:

=
`(Fair \ value-Cash \ difference)-Books \ value \ before \ transaction`

=
`(12600000 -1070000)-8340000`

=
`11530000 -8340000`

=
`3,190,000` ($)

hence,

The Kurtz contact value will be:

= Fair value - Deferred gain

=
`12600000-3190000`

=
`9,410,000` ($)