Question

On December 1, 2014, Kelso Company acquired new equipment in exchange for old equipment that it had acquired in 2011. The old equipment was purchased for $140,000 and had a book value of $53,200. On the date of the exchange, the old equipment had a fair value of $56,000. In addition, Kelso paid $182,000 cash for the new equipment, which had a list price of $252,000. The exchange lacked commercial substance. At what amount should Kelso record the new equipment for financial accounting purposes?

Answer 1

Kelso should record the new equipment for financial accounting purposes at a total amount of $238,000.

Step-by-step explanation:

When recording an exchange of assets, such as in this case where Kelso Company acquired new equipment, the company should record the new equipment at its fair value. In this scenario, the fair value of the old equipment being exchanged was $56,000.

Additionally, Kelso paid $182,000 in cash for the new equipment, which was priced at $252,000.

Therefore, Kelso should record the new equipment for financial accounting purposes at a total amount of $238,000 ($56,000 fair value + $182,000 cash paid).