China Inn and Midwest Chicken exchanged assets. China Inn received a delivery truck and gave equipment. The fair value and book value of the equipment were $22,000 and $12,000 (original cost of $45,000 less accumulated depreciation of $33,000), respectively. To equalize market values of the exchanged assets, China Inn paid $9,000 in cash to Midwest Chicken. At what amount did China Inn record the delivery truck? How much gain or loss did China Inn recognize on the exchange?

$31,000; $10,000

Explanation:

Given that,

Fair value of the equipment = $22,000

Book value of the equipment = $12,000

Original cost of the equipment = $45,000

Accumulated depreciation = $33,000

Fair value of delivery truck:

= Cash paid to Midwest Chicken for delivery truck apart from equipment + Fair value of equipment sold in exchange

= $9,000 + $22,000

= $31,000

Gain recognize on exchange:

= Fair value of equipment given in exchange - Book value of equipment

= $22,000 - $12,000

= $10,000

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