Reference no: EM13862412
1. On December 31, 2012, a company exchanges machines A and B for a new machine C. The company also receives $5,000 in cash. The transaction is deemed to lack commercial substance. Based on the following facts, what gain or loss should be recognized using US GAAP and IFRS? Show all required journal entries to reflect this transaction using US GAAP and IFRS.
Machine A was acquired on January 1, 2009, at a cost of $60,000. The machine has an estimated 10-year useful life and scrap value of $10,000. This machine is depreciated using straight-line depreciation.
Machine B was acquired on January 1, 2011, at a cost of $70,000. The machine has an estimated five-year useful life and scrap value of $5,000. This machine is being depreciated using the double-declining method.
Machine C has a fair value of $63,400 at December 31, 2012.
2. Use the same facts as problem 2 above, except assume no cash is received as part of the exchange. Based on these facts, what gain or loss should be recorded using US GAAP and IFRS? Show all required journal entries to reflect this transaction using US GAAP and IFRS.
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