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VladimirAG [237]
3 years ago
14

Koch traded machine 1 for machine 2 when the fair market value of both machines was $50,000. Koch originally purchased machine 1

for $75,000 and machine 1's adjusted basis was $40,000 at the time of the exchange. Machine 2's seller purchased it for $65,000 and machine 2's adjusted basis was $55,000 at the time of the exchange. What is Koch's adjusted basis in machine 2 after the exchange?
Business
1 answer:
trasher [3.6K]3 years ago
6 0

Answer:

machine 2                   45,000

acc depreciation mchine 1         35,000

machine 1                                    75,000

Explanation:

The seller valuation are not relevant the important is the fair value. Which is 50,000.

<u>If there was commercial substance</u> we will recognize a gain for 5,000

(50,000 fair value - 45,000 book value)

However, <u>we are not given with information of commercial substance,</u> so we should not recognize any gain or loss in trade.

The machine 2 will enter the accounting for the same value as the previous machine net book.

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