@HRSexton
The whole commercial/lacks commercial substance stuff gave me a hard time when I first started studying FAR.
The key is to write down the journal entries. Debit and credit the obvious stuff like DR Accumulated Depreciation and CR cost of the old machine or whatever you gave up plus cash.
When you know you have commercial substance (when not given in the problem): easy, just look at what is being exchanged (car for common stock). Write the JE down with what is given and usually the FV of the machine,car, or whatever you gave up will be the debit to what you received and there could be a gain/loss.
EX:
DR: Investment @ FV of old Car
DR: Accumulated Depreciation old car
CR: Original cost of old car
CR: Cash
CR: Gain
Has commercial substance (usually exchanging similar stuff):
No gain unless cash (boot) received. Always record the loss.
Boot paid, no gain recorded unless >%25 of total consideration (FV of what you are giving up plus cash).
Boot received, gain (fv old machin – cv of old machine). If boot <25 % of total consideration then you can only recognize a portion gain.
Meaning if your total gain was $2,000 you will only be able to recorded (boot/total consideration)x2,000 (total gain).
Once you do your JE the debit to whatever you are receiving will be a plug. (refer to Becker examples they go through each scenario.
Sorry for the sloppy write up, this is coming off the top of my head.
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