Question
Glen Inc. and Armstrong Co. have an exchange with no commercial substance. The asset given up by Glen Inc. has a book value of $39,020.
Glen Inc. and Armstrong Co. have an exchange with no commercial substance. The asset given up by Glen Inc. has a book value of $39,020. The asset given up by Armstrong Co. has a book value of $61,037 and a fair value of $83,951. Boot of $5,868 is received by Armstrong Co. What amount of gain is recognized by Armstrong?
Armstrong has a gain on the exchange. The fair value of their asset is greater than the book value. The amount of gain to be recognized is:
(Fair Value - book value) x cash received/(cash + fair value of Glenn's asset)
Fair value of Glenn's asset = (fair value of Armstrong's - cash paid).
The fair value of assets received = fair value of assets given up.
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