Frank's Bus Lines Exchanged Four of Ford Buses for Four

question 104

Essay

Frank's Bus Lines exchanged four of Ford buses for four GM buses. The carrying value and fair value of each fleet of vehicles on the date of the exchange are as follows:
$$\begin{array} { | l | r | r | r | r | } \hline \text { Asset } & \text { Cost } & \begin{array} { c } \text { Accumulated } \\\text { Depreciation }\end{array} & \text { Carrying Value } & \text { Fair Value } \\\hline \text { Ford Buses (Assets Given Up) } & \$ 900,000 & \$ 310,000 & \$ 590,000 & \$ 620,000 \\\hline \text { GM Buses (Assets Received) } & \$ 880,000 & \$ 260,000 & \$ 620,000 & \$ 595,500 \\\hline\end{array}$$
Frank's received cash of $40,000 and the GM buses in exchange for the Ford buses. It is expected that the future cash flows of Frank's business will not change significantly as a result of this exchange.
What amount of gain would be recognized as a result of this transaction?

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Definitions:

Financing Activities

Transactions that result in changes in the size and composition of the equity capital or borrowings of the entity, as reported in a company’s cash flow statement.

Non-current Liability

Liabilities that are not due within the next twelve months, such as long-term loans, bonds payable, and deferred tax liabilities.

Short-term Loans

Loans scheduled to be repaid in less than a year, typically used for immediate cash flow needs or small-scale expenses.

Cash Flows

Cash flows refer to the inflows and outflows of cash and cash equivalents, representing the operating, investing, and financing activities of an entity during a specific period.