Question

Isle Co. owned a copy machine that cost $5,000 and had accumulated depreciation of $2,000. Isle exchanged the copy machine for a computer that cost $4,000. Isle's future cash flows are not expected to change significantly as a result of the exchange. What amount of gain or loss should Isle report and at what amount should it record the asset?

Answer 1

Answer:

NONE.

Explanation:

computer     3,000 debit

accumulated depreciation 2,000 debit

copy machine 5,000 credit

Because there is none commercial substance, it will be recorded wit the same book value fo the copy machine.

Gain and losses are only recognize if here is an expected change in the future cash flow.  This is not the case.