Texarkana Company exchanged equipment that cost $85,000 and has accumulated depreciation of $29,800 and a fair value of $60,000. It receives in exchange an equipment with a fair value of $42,000 and received $18,000 cash. The exchange lacked commercial substance. The gain to be recognized from the exchange is:

Gain $4,800

Explanation:

Calculation for gain to be recognized from the exchange

Using this formula

Gain= [(Cash received / {Cash received + Fair value}) * {(Fair value+ Cash received- (Exchanged equipment cost - Accumulated Depreciation)}]

Let plug in the formula

Gain= [($12,000 / {$12,000 + $48,000}) * {($48,000 + $12,000 - ($66,000 - $30,000)}],

Gain= [($12,000 /$60,000) * $60,000- $36,000]

Gain=0.2* $24,000

Gain= $4,800

Therefore the  gain to be recognized from the exchange is $4,800

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