Question

Below is information relative to an exchange of similar assets by Grand Forks Corp. Assume the exchange has commercial substance. Old Equipment Cash Book Value Fair Value PaidCase A $50,700 $59,500 $14,300 Case B $39,100 $34,100 $ 7,200 In Case B, Grand Forks would record a gain/(loss) of:______a. $ 5,000.b. $ 2,200.c. $(5,000).d. $(2,200).

Answer 1

Answer:

c. $(5,000)

Explanation:

Calculation for the record of either gain/(loss)

In Case B

Book Value amount was $39,100

Fair Value amount was $34,100

Hence:

Using this formula

Gain/(loss)= Book Value-Fair Value

Let plug in the formula

Gain/(loss)=$39,100-$34,100

Loss=$5,000

Grand Forks would record a loss of $5,000 because the fair value which is the price the buyer is willing to buy the asset is lesser than than book value amount.