Determining Recorded Value of New Equipment in Exchange Transaction

How should Sunland Company record the new equipment for financial accounting purposes?

A. $359,000

B. $354,080

C. $377,000

D. $277,000

Answer:

Sunland Company should record the new equipment for financial accounting purposes at $277,000.

In an exchange of assets without commercial substance, the new equipment's recorded value is determined by comparing the fair value of the old equipment given up and the cash paid for the new equipment. The fair value of the old equipment was $82,000, and the cash paid for the new equipment was $277,000. Since the fair value of the old equipment is lower than the cash paid for the new equipment, the recorded value of the new equipment is equal to the cash paid.

Therefore, Sunland Company should record the new equipment for financial accounting purposes at $277,000, which is the amount paid in cash for the new equipment.

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