Question

Amble, Inc. exchanged a truck with a carrying amount of $12,000 and a fair value of $20,000 for a truck and $5,000 cash. The fair value of the truck received was $15,000.

At what amount should Amble record the truck received in the exchange assuming the exchange lacks commercial substance?
A. $7,000
B. $9,000
C. $12,000
D. $15,000

Answer 1

Answer & Explanation:

The fair value of our asset is $20000 and what we receive is a truck with $15000 market value and $5000 cash. So the transaction possesses commercial substance as the fair value and value received are same.

So assume if the transaction lacks the commercial substance (according to question) then the truck received must be recorded at fair value and must be offset against the truck which is exchanged for. The entry would be:

Dr Truck received @ Fair Value $15000

Cr Truck Sold $12000

Cr Profit on Disposal $8000

The above entry makes it clear that the entry to recognize the truck would be $15000. So the option D is correct.