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    Exchange lacking commercial substance

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    Equipment that cost $66,000 and has accumulated depreciation of $30,000 is exchanged for equipment with a fair value of $48,000 and $12,000 cash is received. The exchange lacked commercial substance.

    The gain to be recognized from the exchange is
    a. $4,800 gain.
    b. $6,000 gain.
    c. $18,000 gain.
    d. $24,000 gain.

    The new equipment should be recorded at
    a. $48,000.
    b. $36,000.
    c. $30,000.
    d. $28,800.

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    Solution Summary

    Rules governing this type of transaction are discussed and solution shown in detail in Excel.