Appendix EX 10-26 Asset traded for similar asset

Assume the same facts as in Exercise 10-25, except that the book value of the press traded in is $108,500. (a) What is the amount of cash given? (b) 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…………………………………… 108,500
Gain on exchange of equipment……………………………………… $ (18,500)
or
Price (fair market value) of new equipment………………………… $275,000
Less assets given up in exchange:
Book value of old equipment……………………………………… $108,500
Cash paid on the exchange………………………………………… 185,000 293,500
Loss on exchange of equipment……………………………………… $ (18,500)