Amble Inc. exchanged a truck with a book value of $12,000 and a fair value of $20,000 for a truck and $5,000 cash. The exchange has commercial substance. At what amount should Amble record the truck received? a.$12,000b.$15,000c.$20,000d.$25,000

Question

Rayna Howell

Business

20 November, 00:51

Amble Inc. exchanged a truck with a book value of $12,000 and a fair value of $20,000 for a truck and $5,000 cash. The exchange has commercial substance. At what amount should Amble record the truck received? a.$12,000b.$15,000c.$20,000d.$25,000

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Answers (1)

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Diamond Stuart · Answer 1

B. $15,000

Explanation:

First, we should understand that there is a difference between the book value and the fair value. This difference will either be a gain or a loss.

Secondly, for the new truck/asset; it should be recognized based on the subtraction of the additional amount paid for the new asset from the fair value of asset exchanged.

Therefore,

The Value of the New Asset = Exchanged Asset's fair value - Consideration paid for the new asset

= The value of the new asset = $20,000 - $5,000 = $15,000

The Amount to be recorded for the truck received is $15,000