11.  Sand Corp exchanged equip used in its operations and pay $2,000 cash to Dake Corp for similiar equip used and its operations. The following is true: FMV of equip given up by Sand Corp is $13,500 (for Dake its $15,500) Cost of equip given up for Sand corp and Dake is $28,000; Accumulated Depr for Sand Corp is $19,000 (for Dake is $10,000) If there is No Commericial Substance for Sand Corp, the Basis of the new asset received in the exchange is higher or lower or the same as compared to the basis obtained by Sand if there is commercial substance? Lower? Higher? the same?

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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11.  Sand Corp exchanged equip used in its operations and pay $2,000 cash to Dake Corp for similiar equip used and its operations. The following is true: FMV of equip given up by Sand Corp is $13,500 (for Dake its $15,500) Cost of equip given up for Sand corp and Dake is $28,000; Accumulated Depr for Sand Corp is $19,000 (for Dake is $10,000)

If there is No Commericial Substance for Sand Corp, the Basis of the new asset received in the exchange is higher or lower or the same as compared to the basis obtained by Sand if there is commercial substance?

Lower?

Higher?

the same?

 

Thank you 

Brenda

 

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A commercial substance means that due to the transaction future cash flow of a business changes.

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