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1.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?

a. $182,000. b. $235,200. c. $238,000. d. $252,000.

The answer:

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$56,000 + $182,000 = $238,000.

2.Use the following information for questions a and b.

A machine cost $600,000, has annual depreciation of $100,000, and has accumulated depreciation of $450,000 on December 31, 2014. On April 1, 2015, when the machine has a fair value of $137,500, it is exchanged for a machine with a fair value of $675,000 and the proper amount of cash is paid. The exchange had commercial substance.

The gain to be recorded on the exchange is

a. $0. b. $12,500 c. $25,000

d. $75,000

Answer:

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$137,500 ($600,000 $475,000) = $12,500. (I dont need explain this)

The new machine should be recorded at

a. $537,500. b. $612,500. c. $662,500.

d. $675,000.

Answer is :

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$537,500 + $137,500 = $675,000. (How come537,500?)

Are they correct answer. They are all gain are not recognized.