Can't figure exchanges out...

Discussion in 'Accounting' started by hi, Nov 15, 2003.

  1. hi

    hi Guest

    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

    -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.

    hi, Nov 15, 2003
    1. Advertisements

  2. hi

    Janice Davis Guest

    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
    Janice Davis, Nov 15, 2003
    1. Advertisements

  3. hi

    hi Guest

    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.
    hi, Nov 15, 2003
  4. For income tax purposes there is no gain or loss, at least in the US.

    spindleberger, Nov 16, 2003
  5. hi

    Janice Davis Guest

    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 Davis, Nov 16, 2003
    1. Advertisements

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments (here). After that, you can post your question and our members will help you out.