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22 April, 20:40

Lewis Company traded machinery with a book value of $950,000 and a fair value of $900,000. It received in exchange from Timmons Company a machine with a fair value of $1,000,000. Lewis also paid cash of $100,000 in the exchange. Timmons s machine has a book value of $950,000. What amount of gain or loss should Lewis recognize on the exchange (assuming lack of commercial substance)

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  1. 22 April, 21:04
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    Lewis should recognize a gain on the exchane of $13,636

    Explanation:

    In order to calculate the amount of gain or loss should Lewis recognize on the exchange, first we have to determine the amount of gain with the followig formula:

    Gain=Total value of the machine received-Book value of machine exchanged

    = (cash received+fair value of machine received) - $950,000

    = ($100,000+$1,000,000) - $950,000

    =$ 150,000

    Next, In order to calculate the amount of gain or loss should Lewis recognize on the exchange we have to use the following formula:

    recognize gain or loss = (cash received) * gain

    cash received+fair value of equipment received

    = ($ 100,000) * 150,000

    $100,000+$1,000,000

    =$13,636

    Lewis should recognize a gain on the exchane of $13,636
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