Sawyer Corporation has a machine (Machine A) that it acquired on 1/1/12 for $360,000. On 12/31/12 such machines have a selling price and fair market value of $414,000. When used in production, such machines have an estimated useful life of 10 years with no salvage value. Use the straight-line method. Brown Corporation has a machine (Machine B) that it acquired on 1/1/12 for $486,000. On 12/31/12 such machines have a selling price and fair market value of $360,000. When used in production, such machines have an estimated useful life of 10 years with no salvage value. Use the straight-line method. On 12/31/12 Brown gave Machine B plus $54,000 cash to Sawyer in return for Machine A.
Requirements:
a. Assume both Sawyer and Brown are new machine dealers and that the machines are still new. Also, assume that the exchange lacks commercial substance. At what amount will, Machine A be recorded on Brown’s books?
b. Given the assumption in letter a, at what amount will Machine B be recorded on Sawyer’s books?
c. Assume that instead of dealers, both Sawyer and Brown are machine manufacturers and use the machines in production. Assume the exchange lacks commercial substance. At what amount will Brown record machine A?
d. Given the assumptions in C above, at what amount will Sawyer record Machine B?
e. Given the assumption in no.3 above except in the fair values of Machines A and B are $504,000 and $450,000, respectively, at what amount will Brown record Machine A?
f. Return to the original problem. Assume that Sawyer is a dealer selling new machines and that Brown is a manufacturer. Assume that the exchange has commercial substance. For this transaction, at what amount will Sawyer record the truck?
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