Question

Pensacola Inc. exchanged old equipment for new equipment in two exchange transactions. Each transaction has commercial substance.

Old Equipment Cash
Book Value Fair Value Received
Equipment A $ 74,000 $ 81,300 $ 11,300
Equipment B $ 61,600 $ 54,800 $ 10,300
For Equipment B, Pensacola would record a gain/(loss) of:________.
a. $5,300
b. $(6,800)
c. $(7,800)
d. none of these answer choices are correct

Answer 1

b. $(6,800)

Step-by-step explanation:

The computation of the gain or loss for the equipment B is shown below:

= Fair value - book value

where,

Fair value = $54,800

And, the book value = $61,600

Now placing these values to the above formula

So, the gain or loss i.e. to be recorded is

= $54,800 - $61,600

= $6,800 loss

as the fair value is less than the book value so the loss of $6,800 should be recorded