Lab-Inc. acquired new equipment lab in exchange for old equipment, $20,000 cash, and a non-interest bearing...

 

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Lab-Inc. acquired new equipment lab in exchange for old equipment, $20,000 cash, and a non-interest bearing note. Based on Lab-Inc's borrowing rate for such transactions, the implicit interest cost is $5,000. The new equipment was valued at $95,000 while the old equipment with a book value of $37,000 ($70,000 cost and $33,000 accumulate depreciation) was valued at $45,000. Record the previous transaction assuming the exchange has commercial substance. Lab-Inc. acquired new equipment lab in exchange for old equipment, $20,000 cash, and a non-interest bearing note. Based on Lab-Inc's borrowing rate for such transactions, the implicit interest cost is $5,000. The new equipment was valued at $95,000 while the old equipment with a book value of $37,000 ($70,000 cost and $33,000 accumulate depreciation) was valued at $45,000. Record the previous transaction assuming the exchange has commercial substance.

Answer rating: 100% (QA)

When an exchange of assets has commercial substance it means that the future cash flows of the compa... View the full answer