1. Chi Corporation trades an asset with a book value of $20,000 for another asset with a fair market value of $15,000. The exchange is deemed to lack commercial substance. Chi s asset had a fair market value of $14,000. Chi paid $1,000 as boot. Compute Chi s recognized gain or loss on the exchange. Answer $5,000 loss $6,000 loss $1,000 gain $5,000 realized but no loss is recognized 2. Which of the following statements concerning the exchange of an asset that has commercial substance does not follow generally accepted accounting principles (GAAP)? Answer The recognition of any gain should be postponed through a lower depreciation basis for the new asset. The new asset could be recorded based on the fair market value of the acquired asset. The new asset could be recorded based on the fair market value of the asset given up. Losses should always be recognized because the exchange culminates the earnings process. 3. Adams Market Inc. trades an asset with a book value of $10,000 for another asset with a fair market value of $8,500 and receives $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. Compute Adams Market s recognized gain or loss. Answer $95 gain $405 gain $500 gain $500 loss King Corporation owns machinery with a book value of $380,000. It is estimated that the machinery will generate future cash flows of $350,000. The machinery has a fair value of $280,000. King should 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 following 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 Companys 12/31/15 balance sheet reports assets of $9,000,000 and liabilities of $3,750,000. All of Dotels assets book values approximate their fair value, except for land, which has a fair value that is $600,000 greater than its book value. On 12/31/15, Egbert Corporation paid $9,150,000 to acquire Dotel. What amount of goodwill should Egbert record as a result of this purchase? Answer $ -0- $3,300,000 $ 150,000 $3,900,000