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A company exchanged land with an appraised value of $50,000 and an original cost of $20,000 for machinery with a fair value of $55,000. Assuming that the transaction has commercial substance, what is the gain on the exchange?
A. $0
B. $5,000
C. $30,000
D. $35,000

Respuesta :

hyderali230

Answer:

D. $35,000

Explanation:

The gain on Land is calculated by the difference of market value of land and its historic value.

Original Cost  = $20,000

Exchange Value = $55,000

Gain on Exchange =   Exchange Value - Original Cost

Gain on Exchange = $55,000 - $20,000

Gain on Exchange = $35,000

So, the gain on the exchange is $35,000

jepessoa

Answer:

C) $30,000

Explanation:

This is a non--monetary exchange that has actual commercial value, therefore, all gains or losses must be calculated using the fair market value of the asset that you give in exchange. In this case, the land's basis is $20,000 and its fair market value is $50,000. So the recognized gain = $50,000 - $20,000 = $30,000

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