[gottagetmycpa]

okay so I am reviewing with wiley and I have come accross this question

In an arm’s-length transaction, Company A and Company B exchanged nonmonetary assets with no monetary consideration involved. The exchange was deemed to have commercial substance for both Company A and Company B, and the fair values of the nonmonetary assets were both clearly evident. The accounting for the exchange should be based on the

A. Fair value of the asset surrendered.

B. Fair value of the asset received.

C. Recorded amount of the asset surrendered.

D. Recorded amount of the asset received.

They are saying that the answer is A. I can’t wrap around my mind why a company would record an asset based on the fair value of the asset surrendered and not received. Please help me wrap my brain around this concept.

FAR 76
REG 76(2x)
BEC FAILED (2x)
AUD FAILED (2x)

"When you don't give up, YOU CANNOT FAIL"

[Zizoty]

I know that if you cant figure out the FMV of the asset received, you can use the FMV of asset surrendered to record. Not sure about this one since FMV of both assets were clearly evident. I'm also confuse myself.

AUD - 83 Feb11
REG - 75 May11
BEC - 73 July11 84 Oct11
FAR - 63 Aug11 76 Feb12 I'M DONE!!!!!

[ppierce]

The asset that a company is receiving is taken off the books from the company thats giving up the asset at Historical Cost (They debit their asset at Historical Cost) and given to company at Fair Value (Company thats getting the asset debits asset at FV). Those are the entires. As to why, i'm not sure.

FAR 80
REG 76
AUD 85
BEC 85
Ethics 98
DONE!!!!!!!!!!!!!!!!!!!!

[gottagetmycpa]

I guess it would depend on the perspective then. So if it was company A. they would record the assest based on company b's fair value asset ( company b surrendered their asset and company A recevied it) so it IS based on the asset surrendered. but aint that the same thing as basing it on the asset received??? uuugghhh FAR I can't stand you!!!!

FAR 76
REG 76(2x)
BEC FAILED (2x)
AUD FAILED (2x)

"When you don't give up, YOU CANNOT FAIL"

[kerwin]

@ Gotta

Remember that the question specifically states that the transaction had commercial substance, thus, the asset received should be valued at FMV.

Also, please remember the theoretical framework specifies that FMV is the amount at which market participants are willing t exchange in market transactions in the absence of force or liquidation. That is to say, FMV is based on exist price and not entrance price which is replacement costs.

Thus, the asset received shuld be valued at exit price, that is, the amount that is spent, which is the asset given up. However, in cases where FMV cannot be determined, other surrogated can be used to approximate FMV, in that case, the entrance price will be used. But since the question already gave an exit price, that is FMV, which must be used.

I hope this helps.

[gottagetmycpa]

MAKES SENSE!!!!! that is the piece I was missing the actually definition of FMV!! okay got it! see I do ssooo much better on the formula questions! the concepts blow my mind! but I have to get it together only have about 19 days left to study!!!

thanks again

FAR 76
REG 76(2x)
BEC FAILED (2x)
AUD FAILED (2x)

"When you don't give up, YOU CANNOT FAIL"

[kerwin]

Gotta, are you using the wiley online test bank? The reason I ask, since last week, I am experiencing some problems logging in.

[gottagetmycpa]

yes I am but it is the CD not the online version

FAR 76
REG 76(2x)
BEC FAILED (2x)
AUD FAILED (2x)

"When you don't give up, YOU CANNOT FAIL"

[Bonk]

Its crazy because it seems like businesses can just exchange assets each year to write off their accumulated depreciation and receive a gain! What prevents a person from just calling up their buddy and exchanging their assets each year to beef up their books? Crazy concept..

FAR: 85
BEC: 84
AUD: 74, 83
REG: ??

[Author]

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