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5 August, 14:49

A machine that was purchased for $110,000 has accumulated depreciation of $90,000. The business exchanges the machine for a new one. The new machine has a market value of $140,000, and the business pays $110,000 cash. Assume the exchange has commercial substance. This exchange results in a

A, loss of $10,000

B. gain of $5,000

C. loss of $20,000

D. gain of $10,000

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Answers (2)
  1. 5 August, 16:10
    0
    option (D) gain of $10,000

    Explanation:

    Data provided in the question:

    Cost of the machine purchased earlier = $110,000

    Accumulated depreciation = $90,000

    Market value of the new machine = $140,000

    Cash paid for the new machine = $110,000

    Now,

    The Book value of the old machine

    = Cost of purchase - Accumulated depreciation

    = $110,000 - $90,000

    = $20,000

    Thus,

    Total amount paid for the new machine

    = Book value of the old machine + Cash paid for the new machine

    = $20,000 + $110,000

    = $130,000

    Therefore,

    Gain from the exchange

    = Market value of the new machine - Total amount paid

    = $140,000 - $130,000

    = $10,000

    Hence,

    The correct answer is option (D) gain of $10,000
  2. 5 August, 17:25
    0
    net gain = $10000

    so correct option is D. gain of $10,000

    Explanation:

    given data

    purchased = $110,000

    accumulated depreciation = $90,000

    market value = $140,000

    business pays cash = $110,000

    to find out

    exchange results

    solution

    we get first current book value of the machine that is here

    current book value = purchased - accumulated depreciation ... 1

    put here valuer we get

    current book value = $110000 - $90000

    current book value = $20000

    we know that new machine is exchanged = $110000

    and market value = $140000

    so we can say here net gain is

    net gain = $140000 - $110000 - $20000

    net gain = $10000

    so correct option is D. gain of $10,000
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