Wolf Computer exchanged a machine with a book value of $40,000 and a fair value of $45,000 for a very similar machine. In additi

Question

Assoli18 [71]

2 years ago

6

Wolf Computer exchanged a machine with a book value of $40,000 and a fair value of $45,000 for a very similar machine. In additi

on, Wolf paid $6,000 as part of the exchange. Wolf should recognize:

Business

1 answer:

fgiga [73] · Answer 1 · 2022-11-17T14:38:33+03:00

Answer:

gain of $5,000

Explanation:

Wolf's gain = fair market value - book value = $45,000 - $40,000 = $5,000

a company must determine the gain or loss of an exchange transaction using the asset's book value and comparing it against its fair market value. If the FMV is higher than the book value, the company will recognize a gain. If the FMV is lower than the book value, then the company will recognize a loss.