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2 December, 07:17

Sheridan Inc. and Pharoah Co. have an exchange with no commercial substance. The asset given up by Sheridan Inc. has a book value of $58500 and a fair value of $93500. The asset given up by Pharoah Co. has a book value of $123500 and a fair value of $108500. Boot of $28500 is received by Pharoah Co. What amount should Sheridan Inc. record for the asset received? $123500 $108500 $93500 $87000

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  1. 2 December, 07:38
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    The answer is B) 108,500 USD which is the Fair Value of the assets that Sheridan Inc. received from Pharoah Co.

    Explanation:

    Let's sort out this question in more presentable way:

    Following are our multiple choices to choose from.

    a) 123,500 USD

    b) 108,500 USD

    c) 93,500 USD

    d) 87,000 USD

    Now, let's arrange the data given:

    Sheridan Inc. Book Value of the asset = 58,500 USD

    Sheridan Inc. Fair Value of the asset = 93,500 USD

    Pharoah Co. Book Value of the asset = 123,500 USD

    Pharoah Co. Fair Value of the asset = 108,500 USD

    So, we are asked that what amount should Sheridan Inc. record for the asset received.

    In this question, we know that exchange is without any commercial substance. So, the rule is to record the assets received at the Fair Value.

    So, let's find out which is the Fair Value of assets that Sheridan Inc. received.

    Sheridan Inc. Given up the assets with Book value and Fair value of 58,500 USD and 93,500 USD respectively.

    But Sheridan Inc. received assets from Pharoah Co. with the Book Value and Fair Value of 123,500 USD and 108,500 USD respectively.

    Hence, the answer is B) 108,500 USD which is the Fair Value of the assets that Sheridan Inc. received from Pharoah Co.
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