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    denasia's Avatar
    denasia Posts: 3, Reputation: 1
    New Member
    		  
    #1

    Oct 1, 2009, 07:25 AM
    Exchange Lack of Commercial Substance
    On December 30, 2005 Diamnond Company traded in an old machine with book value of $10,000 for a similar new machine having a list price of $32,000 and paid a cash difference of $19,000. Diamond does not think there will be a significant change in class flows as a result of this transaction. Therefore, the transaction lacks commercial substance. What should Diamond record the new machine at:

    a. 32000
    b. 29000
    c. 22000
    d. 19000
    hamzashakaa's Avatar
    hamzashakaa Posts: 161, Reputation: 8
    Junior Member
    		  
    #2

    Oct 3, 2009, 01:38 PM

    When an exchange lacks commercial substance the new machine will be recorded at the book value of the asset given uo plus cash received this will give you the answer which is 29,000
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