Question

On December 31, 2005, Vey Co. traded equipment with an original cost of $100,000 and accumulated depreciation of $40,000 for productive equipment with a fair value of $60,000. In addition, Vey received $30,000 cash in connection with this exchange. There is commercial substance to the exchange. What should be Vey's carrying amount for the equipment received at December 31, 2005?

Answer 1

Answer:

equipment received at December 31, 2005   60,000

Explanation:

There is commercial substance in the exchange. Therefore Bey will recognize gain or losses on disposal.

The equipment will enter on Vey accounting with their fair value of 60,000

And that will be the amount reported on the balance sheet.

As a general rule:

When there is commercial substance:

• record the traded-out asset at their book value

• the trade-in asset at their fair value

• recognize a gain/loss on the old asset

This w