A printing press priced at a fair market value of $275,000 is acquired in a transaction that has commercial substance by trading in a similar press and paying cash for the difference between the trade-in allowance and the price of the new press.
a. Assuming that the trade-in allowance is $90,000, what is the amount of cash given?
b. Assuming that the book value of the press traded in is $108,500, what is the gain or loss on the exchange?
(A) Assuming that the trade-in allowance is $90,000, then the amount of cash given = $ 185,000
Explanation : the amount of cash given
= $ 275,000- $ 90,000
=185,000
( B )Assuming that the book value of the press traded in is $108,500, then
the gain or loss on the exchange = $ 18,500
Explanation to the answer :
the gain or loss on the exchange = $ 108,500 – $ 90,000
= $ 18,500
