Question

Calaveras Tire exchanged equipment for two pickup trucks. The book value and fair value of the equipment given up were $34,000 (original cost of $86,000 less accumulated depreciation of $52,000) and $45,000, respectively. Assume Calaveras paid $6,000 in cash and the exchange lacks commercial substance. At what amount will Calaveras value the pickup trucks? How much gain or loss will the company recognize on the exchange?

Answer 1

1. $51,000

2.$11,000 Gain

Step-by-step explanation:

(1) Calculation to determine At what amount will Calaveras value the pickup trucks

Using this formula

Trucks value =Fair value + Cash paid

Let plug in the formula

Trucks value=$45,000+$6,000

Trucks value=$51,000

Therefore Calaveras value the pickup trucks at $51,000

(2) Calculation to determine How much gain or loss will the company recognize on the exchange

Using this formula

Gain or loss on exchange =Fair value - Book value

Let plug in the formula

Gain or loss on exchange=$45,000-$34,000

Gain or loss on exchange=$11,000 Gain

Therefore the company will $11,000 GAIN recognize on the exchange