Question

China Inn and Midwest Chicken exchanged assets. Midwest Chicken received equipment and gave a delivery truck. The fair value and book value of the delivery truck given were $31,000 and $32,600 (original cost of $37,000 less accumulated depreciation of $4,400), respectively. To equalize market values of the exchanged assets, Midwest Chicken received $9,000 in cash from China Inn.
1. At what amount did Midwest Chicken record the equipment?

2. How much gain or loss did Midwest Chicken recognize on the exchange?

Answer 1

Book value is the asset value shown in the balance sheet.,but the Midwest chicken sold out the truck to china Inn .,so we should consider the fair value which is the market value of the Truck

Explanation:

Equipment cost

Sale value of the truck+ $9000 (given by China Inn)

= $31,000 + $9000 = $40,000

$40,000 should be the record value of the Equipment bought by the Midwest Chicken

Effects on the Exchange

Truck book value - Sales value

      = $32,600 - $31,000 = $1,600 (loss on sale)

Midwest Chicken recognize a loss amounted to $1,600 on this exchange