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

    Oct 4, 2009, 04:30 PM
    exchange lack of commercial substance
    Redman Company received $20,000 in cash and a used computer with a fair value of $180,000 from Galaxy Corporation for Redman's existing computer having a fair value of $200,000 and an undepreciated cost of $160,000 recorded on its books. Redman does not think that there will be significant changes in cash flow. Therefore, it lacks commercial substance. How much gain should Redman recognize on this exchange, and at what amount should the acquired computer be recorded, respectively?

    a. 0 and 140,000

    b. 4,000 and 140,000

    c. 20,000 and 160,000

    d. 40,000 and 180,000
    hamzashakaa's Avatar
    hamzashakaa Posts: 161, Reputation: 8
    Junior Member
    		  
    #2

    Oct 6, 2009, 06:40 AM

    Dr. Cash 20000
    Dr. computers 140000 (net book value of the asset giving up less cash received)
    Cr. Old computers 160000
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