Teal Services Asset Exchange: Gain or Loss?

What should Teal Services record for the asset exchange?

a. a $400 loss

b. a $400 gain

c. a $10,000 loss

d. no gain or loss

The correct entry for Teal Services asset exchange is a $400 loss.

When an asset is exchanged for a nonmonetary item, it is valued at fair value. A loss is recognized if the fair value of the asset received is less than the fair value of the asset given up. In this case, Teal Services exchanged a $24,000 asset (now 40% depreciated) for a nonmonetary asset worth $12,000 and received $2,000 boot. As the fair value of the asset exchanged is less, a $400 loss should be recorded.

Teal Services exchanged an asset that was 40% depreciated with a cost of $24,000 for a nonmonetary asset worth $12,000, and received $2,000 boot. The entry to record this exchange should reflect the $400 loss, as the fair value of the asset received is less than the fair value of the item given up.

It's important in accounting to accurately account for gains and losses in asset exchanges to ensure the financial statements reflect the true value of the company's assets. Understanding the concept of fair value and recognizing gains or losses in exchanges is crucial for accurate financial reporting.

By recording the $400 loss in the entry for the asset exchange, Teal Services can maintain transparency in their financial records and adhere to accounting standards.