Question

Alamos Co. exchanged equipment and $18,000 cash for similar equipment. The book value and the fair value of the old equipment were $82,000 and $90,000, respectively. Assuming that the exchange lacks commercial substance, Alamos would record a gain/(loss) of: A. $26,000. B. $8,000. C. $(8,000). D. $0.

Answer 1

Answer:

correct option is B. $8,000

Explanation:

given data

equipment = $18,000

book value = $82,000

fair value = $90,000

to find out

Alamos would record a gain/(loss)

solution

we know that When exchange have commercial substance we need to record the gain arising from transfer of old assets

so here Gain on transfer of old assets is

Gain on transfer of old assets =  fair value of the old equipment - book value of the old equipment     ................1

Gain on transfer of old assets =  $90,000 -  $82,000

Gain on transfer of old assets = $8,000

so here correct option is B. $8,000