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question you have two clients that are considering trading machinery witheach other 4288122

Question

You have two clients that are considering trading machinery witheach other. Although the machines are different from each other,you believe that an assessment of expected cash flows on theexchanged assets will indicate the exchange lacks commercialsubstance. Your clients would prefer that the exchange be deemed tohave commercial substance, to allow them to record gains. Here arethe facts:

Explain the dollar impact on current and future statements oftreating the exchange as having, versus lacking, commercialsubstance.

 

Client A

Client B

Original cost

$100,000

$150,000

Accumulated depreciation

40,000

80,000

Fair value

80,000

100,000

Cash received (paid)

(20,000)

20,000

 

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