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27 November, 12:56

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.

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  1. 27 November, 13:59
    0
    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
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