Alice Corp. is contemplating exchanging a machine used in its operations for ano

Question

Alice Corp. is contemplating exchanging a machine used in its operations for another machine. Alice will exchange machines with either Tweedledee Inc. or Tweedledum Co. The data relating to the machines is presented below. Assume Alice and Tweedledee Inc. exchange mayhems and the transaction has commercial substance. If Alice exchanges its used machine and pays 525,000 in cash, determine the value Alice should record for the asset received. Determine the gain loss Alice should recognize in part (a), if any. Assume Alice and Tweedledum Co. exchange machines and the transaction lacks commercial substance. If Alice exchanges its used machine and also receives dollar 22,000 cash from Tweedledum, determine the value Alice should record for the asset received. Determine the gain loss Alice should recognize in part (c). if any.

Explanation / Answer

Value of the Alice machine on exchange = $200000 - 126500 = $73500

(a) Alice should record for the asset received from Tweedledee Inc. = 180000 - 70000 + 25000 = $135000

(b) The gain/(loss) Alice should recognize above = $135000 - $73500 =$61500 gain

(c) Alice should value the Tweedledum Co. machine on exchange = $150000 - 65000- 22000 = $68000

(d) The gain/(loss) Alice should recognize above (c) = $73500 - $68000 = ($5500) loss

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