Metro Inc. trades its used machine for a new model at Denver Co. The used machine has a book value of $42,000 (cost $64,000) and a fair value of $50,000. Metro receives $5,000 cash from Denver. A) Prepare the necessary journal entry by Metro to record this exchange. Assume the exchange has no commercial substance. B) Prepare the necessary journal entry by Metro to record this exchange. Assume the exchange has commercial substance.

Gain on exchange = (Fair value of machine - cost of machine) x Cash received / Fair value of machine…

Answered: Metro Inc. trades its used machine for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Metro Inc. trades its used machine for a new model at Denver Co. The used machine has a book value of $42,000 (cost $64,000) and a fair value of $50,000. Metro receives $5,000 cash from Denver.

A) Prepare the necessary journal entry by Metro to record this exchange. Assume the exchange has no commercial substance.

B) Prepare the necessary journal entry by Metro to record this exchange. Assume the exchange has commercial substance.

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