A machine that was purchased for $110,000 has accumulated depreciation of $90,000. The business exchanges the machine for a new one. The new machine has a market value of $140,000, and the business pays $110,000 cash. Assume the exchange has commercial substance. This exchange results in a

A, loss of $10,000

B. gain of $5,000

C. loss of $20,000

D. gain of $10,000

option (D) gain of $10,000

Explanation:

Data provided in the question:

Cost of the machine purchased earlier = $110,000

Accumulated depreciation = $90,000

Market value of the new machine = $140,000

Cash paid for the new machine = $110,000

Now,

The Book value of the old machine

= Cost of purchase - Accumulated depreciation

= $110,000 - $90,000

= $20,000

Thus,

Total amount paid for the new machine

= Book value of the old machine + Cash paid for the new machine

= $20,000 + $110,000

= $130,000

Therefore,

Gain from the exchange

= Market value of the new machine - Total amount paid

= $140,000 - $130,000

= $10,000

Hence,

The correct answer is option (D) gain of $10,000

net gain = $10000

so correct option is D. gain of $10,000

Explanation:

given data

purchased = $110,000

accumulated depreciation = $90,000

market value = $140,000

business pays cash = $110,000

to find out

exchange results

solution

we get first current book value of the machine that is here

current book value = purchased - accumulated depreciation ... 1

put here valuer we get

current book value = $110000 - $90000

current book value = $20000

we know that new machine is exchanged = $110000

and market value = $140000

so we can say here net gain is

net gain = $140000 - $110000 - $20000

net gain = $10000

so correct option is D. gain of $10,000