Appendix EX 10-25 Asset traded for similar asset

A printing press priced at a fair market value of $275,000 is acquired in a transaction that has commercial substance by trading in a similar press and paying cash for the difference between the trade-in allowance and the price of the new press.

a. Assuming that the trade-in allowance is $90,000, what is the amount of cash given?
b. Assuming that the book value of the press traded in is $68,000, what is the gain or loss on the exchange?


Answer:

a. Price (fair market value) of new equipment………………………… $275,000
Trade-in allowance of old equipment………………………………… 90,000
Cash paid on the date of exchange………………………………… $185,000
b. Fair market value (trade-in allowance) of old equipment………… $ 90,000
Less book value of old equipment…………………………………… 68,000
Gain on exchange of equipment……………………………………… $ 22,000
or
Price (fair market value) of new equipment………………………… $275,000
Less assets given up in exchange:
Book value of old equipment……………………………………… $ 68,000
Cash paid on the exchange………………………………………… 185,000 253,000
Gain on exchange of equipment……………………………………… $ 22,000