Appendix EX 10-28 Asset traded for similar asset

Assume the same facts as in Exercise 9-27, except that the book value of the press traded in is $108,500. (a) What is the amount of cash given? (b) What is the gain or loss on the exchange?

Answer:

a. Price (fair market value) of new equipment........................  $275,000

Less trade-in allowance of old equipment........................... 90,000

Cash paid on the date of exchange.................................... $185,000

b. Fair market value (trade-in allowance) of old equipment...... $ 90,000

Less book value of old equipment....................................  108,500

Loss on exchange of equipment....................................... $ (18,500)

or

Price (fair market value) of new equipment........................  $275,000

Assets given up in exchange:

Book value of old equipment....................................... $108,500

Cash paid on the exchange.......................................... 185,000 293,500

Loss on exchange of equipment....................................... $ (18,500)