Norman Exchanges a Machine He Uses in His Pool Construction

question 67

Multiple Choice

Norman exchanges a machine he uses in his pool construction business for a used machine worth $6,000 to use in the same business.He purchased the machine 3 years ago for $22,000 and has taken depreciation of $9,000 on the machine.In the exchange,Norman also receives $3,000 of cash.As a result of the exchange,
I.Norman's basis in the acquired machine is $10,000.
II.Norman recognizes a loss of $3,000 on the exchange.
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• A)Only statement I is correct.
• B)Only statement II is correct.
• C)Both statements are correct.
• D)Neither statement is correct.

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Definitions:

Common-Size Statement

A financial statement in which each line item is expressed as a percentage of a significant total, facilitating comparison.

Comprehensive Income

The change in equity of a business enterprise during a period from transactions and other events from non-owner sources. It includes all forms of earnings and gains or losses.

Accounts Payable Turnover

A financial metric that measures the rate at which a company pays off its suppliers.

Days' Sales

A financial metric that measures the average time it takes for a company to turn its inventory into sales.