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On January 2, Year 1, a company buys a piece of equipment for $50,000 with a 10 year life and a residual value of $8,000. It is depreciated using the straight line method. On July 1, Year 4, the equipment is worth $44,000 and is traded for a van worth $46,000. What amount of gain is recognized on this exchange?
Depreciation is recorded at $4,200 per year ($50K purchase price - $8K residual value over 10 years) for 3.5 years. The total book value at the time of the exchange is $35,300 ($50K purchase price - $14,700 depreciation). This book value is compared to the old asset's fair value to determine how much gain is realized ($44K FV - $35,300 BV). Because this transaction has commercial substance the gain is recognized.
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The Scott Company owns an asset with a cost of $320,000, a book value of $305,000, and a fair value of $345,000. The asset is traded for another asset and the exchange is viewed as having no commercial substance. Which of the following is true regarding the exchange?
When an exchange has no commercial substance, and no cash changes hands, the new asset is booked at the book value of the old asset.
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ABC factored receivables without recourse with DEF bank. ABC received cash as a result of the transaction , which is best described as a:
Factoring A/R without recourse is a sales transaction. Factoring without recourse transfers risk of collectability to the buyer.
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One method of estimating uncollectible accounts emphasizes the asset valuation over income measurement. This is the allowance method based on:
Estimating bad debt on aging of receivables is a good matching of revenue and expense. It focuses on the balance sheet and emphasizes the valuation of assets.
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Under IFRS rules, the ___________ is required for recognizing revenue from construction contracts.
The percentage of completion method for revenue recognition is required under IFRS unless the final outcome of the construction project cannot be reasonably estimated.
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