B is corrent. Per ASC Topic 845, when the cash flows of the assets are expected to be significantly different, the transaction has commercial substance and is recorded at fair value. In this transaction, an asset with a book value of $60,000 (50% x $120,000) is exchanged when it has a fair market value of $70,000. Therefore, a $10,000 gain ($70,000 – $60,000) is recognized. The new asset acquired is recorded at the fair value of the assets surrendered ($16,000 cash and $70,000 machine, or $86,000).
A is incorrect. Per ASC Topic 845, when the cash flows of the assets are expected to be significantly different, the transaction has commercial substance and is recorded at fair value. In this transaction, an asset with a book value of $60,000 (50% x $120,000) is exchanged when it has a fair market value of $70,000. Therefore, a $10,000 gain ($70,000 – $60,000) is recognized. The new asset acquired is recorded at the fair value of the assets surrendered ($16,000 cash and $70,000 machine, or $86,000).
A is incorrect. Per ASC Topic 845, when the cash flows of the assets are expected to be significantly different, the transaction has commercial substance and is recorded at fair value. In this transaction, an asset with a book value of $60,000 (50% x $120,000) is exchanged when it has a fair market value of $70,000. Therefore, a $10,000 gain ($70,000 – $60,000) is recognized. The new asset acquired is recorded at the fair value of the assets surrendered ($16,000 cash and $70,000 machine, or $86,000).
A is incorrect. Per ASC Topic 845, when the cash flows of the assets are expected to be significantly different, the transaction has commercial substance and is recorded at fair value. In this transaction, an asset with a book value of $60,000 (50% x $120,000) is exchanged when it has a fair market value of $70,000. Therefore, a $10,000 gain ($70,000 – $60,000) is recognized. The new asset acquired is recorded at the fair value of the assets surrendered ($16,000 cash and $70,000 machine, or $86,000).
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