Question

Alamos Co. exchanged equipment and $18,900 cash for similar equipment. The book value and the fair value of the old equipment were $81,300 and $91,400, respectively. Assuming that the exchange lacks commercial substance, Alamos would record a gain/(loss) of:
A. $29,000.
B. $(10,100).
C. $ 0.
D. $ 10,100.

Answer 1

Answer:

C. $ 0.

Explanation:

Provided that

Book value of the old machine = $81,300

The Fair value of the old machine = $91,400

So, we can see that there will be a gain of

= Fair value - book value

= $91,400 - $81,300

= $10,100

But this gain would not be recognized in case of lacking commercial substance. So, there would be zero gain or loss