I need help understanding the below question from the NINJA FAR questions….. From my understanding anytime there is cash within a transaction Gains/Losses should be recognized????
During 20X1, Beam Co. paid $1,000 cash and traded inventory, which had a carrying amount of $20,000 and a fair value of $21,000, for other inventory in the same line of business with a fair value of $22,000. The exchange of the inventory is to facilitate sales to Beam's customers. What amount of gain (loss) should Beam record related to the inventory exchange?
A. $2,000
B. $1,000
C. $0
D. $(1,000)
Answer: FASB ASC 845-10-30-1 specifies that the accounting for nonmonetary exchanges generally should be accounted for based on fair values, which is the same basis as that used for monetary transactions. FASB ASC 845-10-30-3 provides three exception cases in which a nonmonetary exchange should be recorded based on the recorded amount (book value) of the assets surrendered:
1.Fair value is not determinable.
2.Exchange transaction is to facilitate sales for customers.
3.Exchange transaction lacks commercial substance.
In Beam's case, exception 2 is met. The exchange of the inventory is to facilitate sales to Beam's customers. The exchange should be recorded based on carrying amounts with no gain recognized. If the inventory's carrying amount had been in excess of the fair value of the inventory given up, the inventory given up should have been written down and the loss recognized before the exchange was recorded
.