Question

1.On December 31, 2015, Heritage Co. traded equipment with an original cost of $200,000 and accumulated depreciation of $30,000 for a new piece of equipment with a fair value of $160,000. In addition, Heritage Co. received $40,000 cash.

Assume the exchange has commercial substance. What should Heritage Co. record as the cost of the new asset?

Select one:

a. $166,000

b. $176,000

c. $136,000

d. $130,000

e. $160,000

2.An old truck, which cost $49,500 and was two-thirds depreciated, was exchanged for a tractor with a fair value of $45,000; $30,000 cash was paid for the tractor. The exchange lacked commercial substance. At what amount should the tractor be recorded?

Select one:

a. $49,500

b. $45,000

c. $46,500

d. $48,000

e. $79,500

Answer 1

Q1. Exchanges that have commercial substance should be recorded at fair value.

Answer is: E. $160,000

Q2

Cost of old truck	$    49,500
Less: Accumulated depreciation ($49,500*2/3)	$ (33,000)
Add: Cash paid	$    30,000
amount should the tractor be recorded	$    46,500

Answer is : C$46,500

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