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27 July, 06:26

Timmons Company traded machinery with a book value of $360,000 and a fair value of $600,000. It received in exchange from Lewis Company a machine with a fair value of $540,000 and cash of $60,000. Lewis's machine has a book value of $570,000. What amount of gain should Timmons recognize on the exchange (assuming lack of commercial substance) ?

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  1. 27 July, 06:38
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    amount of gain recognize is $24000

    Explanation:

    Given data

    Timmons book value = $360,000

    Timmons fair value = $600,000

    Lewis fair value = $540,000

    Lewis book value = $570,000

    cash = $60,000

    to find out

    amount of gain recognize

    solution

    we know that here that cash is receive in exchange

    so no commercial substance but gain is recognize

    so we find gain that is

    gain = fair value - book value

    gain = 600000 - 360000

    so gain is $240000

    and

    we say cash % for fair value is

    cash % for fair value = cash / fair value

    cash % = 60000 / 600000

    cash% is 10% for fair value

    so that here recognized gain recognize is given as

    gain recognize = gain * cash %

    gain recognize = 240000 * 10%

    gain recognize = 24000

    so amount of gain recognize is $24000
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