Question :
1. Chi Corporation trades an asset with a book value of $20,000 for other asset with a fair market value of $15,000. The exchange is deemed to lack commercial substance. Chi s asset had a reasonable market value of $14,000. Chi paid $1,000 as boot. Evaluate Chi s recognized gain or loss on the exchange.
Answer
$5,000 loss
$6,000 loss
$1,000 profit
$5,000 realized but no loss is recognized
2. Which of the subsequent statements concerning the exchange of an asset that has commercial substance does not follow usually accepted accounting principles (GAAP)?
Answer
The recognition of any profit should be postponed throughout a lower depreciation basis for the new asset.
The new asset would be recorded based on the reasonable market value of the acquired asset.
The new asset would be recorded based on the reasonable market value of the asset given up.
Losses should forever be recognized because the exchange culminates the earnings process.
3. Adams Market Inc. trades an asset with a book value of $10,000 for other asset with a fair market value of $8,500 and gets $2,000 as boot. The exchange is deemed to lack commercial substance. The fair market value of Adams Market s old asset is $10,500. Evaluate Adams Market s recognized profit or loss.
Answer
$95 gain
$405 gain
$500 gain
$500 loss
King Corporation owns machinery with a book value of $380,000. It is evaluated that the machinery will produce future cash flows of $350,000. The machinery has a fair value of $280,000. King could recognize a loss on impairment of
Answer
$100,000.
$ 70,000.
$ 30,000.
$ -0-.
4. On March 1, 2005, Johnson Company purchased for $1,000,000 a building and the land on which it is located. The subsequent data were available concerning the property: Land: Appraised value - $600,000, Seller s Book Value - $300,000. Building: Appraised value -$600,000, Seller s Book Value -$400,000. Johnson should record the land at
Answer
$300,000.
$428,571.
$500,000.
$600,000
4. Dotel Company's 12/31/15 balance sheet reports assets of $9,000,000 and liabilities of $3,750,000. All of Dotel's assets' book values estimated their fair value, except for land, which has a fair value that is $600,000 bigger than its book value. On 12/31/15, Egbert Corporation paid $9,150,000 to get Dotel. What amount of goodwill could Egbert record as a result of this purchase?
Answer
$ -0-
$3,300,000
$ 150,000
$3,900,000