Question: I. Quality Corp. traded an old machine with book value of $60,000 (cost $110,000) and a fair value of $100,000. Quality received a machine with

I. Quality Corp. traded an old machine with book value of $60,000 (cost $110,000) and a fair value of $100,000. Quality received a machine with a fair value of $90,000 plus cash.

1) Every exchange should be a fair exchange. To be a fair exchange, how much of cash Quality should receive?

2) Does Quality record a gain or loss in this exchange? Why?

3) Prepare a journal entry for Quality, assuming commercial substance.

4) Prepare a journal entry for Quality, assuming no commercial substance.

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