Cullumber Company traded machinery with a book value of $525000 and a fair value of $1025000. It received in exchange from Marigold Corp. a machine with a fair value of $922500 and cash of $102500. Marigold’s machine has a book value of $973750. What amount of gain should Cullumber recognize on the exchange (assuming lack of commercial substance)? $102500 $50000 $500000 $ -0-
Cullumber Company traded machinery with a book value of $525000 and a fair value of $1025000. It received in exchange from Marigold Corp. a machine with a fair value of $922500 and cash of $102500. Marigold’s machine has a book value of $973750. What amount of gain should Cullumber recognize on the exchange (assuming lack of commercial substance)? $102500 $50000 $500000 $ -0-
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Cullumber Company traded machinery with a book value of $525000 and a fair value of $1025000. It received in exchange from Marigold Corp. a machine with a fair value of $922500 and cash of $102500. Marigold’s machine has a book value of $973750. What amount of gain should Cullumber recognize on the exchange (assuming lack of commercial substance)?
$102500
$50000
$500000
$ -0-
Expert Solution
Step 1
The company is required to record a gain in the books of accounts for the exchange of assets if the value of new assets exceeds the values of asset given up. Alternatively, a loss is recognized if the value of old asset exceeds the value of new asset that has been acquired by the company.
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