Can't figure exchanges out...


H

hi

Liberty Corp owns a machine that orignally cost $200,000 upon which there is
depreciation of $140,000.

C. The machine is given for a new machine that fulfills the same function
and cash of $40,000 is received The fair value of the new machine is
$70,000.

-i'm stuck. How do you compute whether you have a gain or a loss on the
transaction? So far I have:

Cash Dr
New Machine Dr
Acc. Depr. Dr 140,000
Old Asset Dr.

The book states some stuff about fair value consideration (given) = fair
value consideration (received), but how does that apply to this example?
What's the fair value of the machine we're giving up? $200,000 or $60,000?

fair value given = 200,000 (the cost?)
fair value received = 40,000 cash + 70,000 fair value machine

I'm stuck and have a brain lapse... someone please help me out.



--
 
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J

Janice Davis

hi said:
Liberty Corp owns a machine that orignally cost $200,000 upon which there is
depreciation of $140,000.

C. The machine is given for a new machine that fulfills the same function
and cash of $40,000 is received The fair value of the new machine is
$70,000.

-i'm stuck. How do you compute whether you have a gain or a loss on the
transaction? So far I have:
And here is what I got--Janice
Cash Dr $40,000 <== Liberty received cash
New Machine Dr 70,000
Acc. Depr. Dr 140,000
Old Asset Cr. $200,000
Gain on disp 50,000
 
H

hi

correct. i just got that answer too. check my last post for info on how to
figure it out when cash is less than 25% of the consideration received.
 
S

spindleberger

For income tax purposes there is no gain or loss, at least in the US.

Spindlegerger
 
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J

Janice Davis

These questions are for financial accounting purposes. Hi and I are both
taking Intermediate Fin Acc I this term. Thanks for the input though I will
add it to my memory.

Janice
 

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