Question

China Inn and Midwest Chicken exchanged assets. Midwest Chicken received equipment and gave a delivery truck. The fair value and book value of the delivery truck given were $30,100 and $32,400 (original cost of $37,400 less accumulated depreciation of $5,000), respectively. To equalize market values of the exchanged assets, Midwest Chicken received $7,600 in cash from China Inn. 1. At what amount did Midwest Chicken record the equipment? Equipment 2. How much gain or loss did Midwest Chicken recognize on the exchange?

Answer 1

Answer:

1). Amount recorded=$37,700

2). Midwest Chicken gained $300 from the exchange

Explanation:

1). What amount Midwest chicken recorded the equipment;

The delivery truck was actually priced at the fair value since that's the amount that the buyer is willing to pay

Amount recorded=Fair value+Cash from China Inn

where;

Fair value=$30,100

Cash from China Inn=$7,600

replacing;

Amount recorded=(30,100+7,600)=37,700

2). How much gain or loss did Midwest chicken recognize;

Gain/loss=Amount recorded-Original cost

where;

Amount recorded=37,700

Original cost=37,400

replacing;

Gain=(37,700-37,400)=$300

Midwest Chicken gained $300 from the exchange