Solen has an implied gain given that the fair value of its asset exceeds its book value.

But when there is no commercial substance, such gains are recognized only when cash
is received. Solen paid cash on the exchange.
May Co. and Sty Co. exchanged nonmonetary assets. The exchange did not culminate
an earning process for either May or Sty (the exchange lacked commercial substance).
May paid cash to Sty in connection with the exchange.
The book value of the asset exchanged exceeded its fair value for both firms. Therefore,
a loss on the exchange should be recognized by
May Sty
Yes Yes
The fair value of each asset is less than book value implying that both firms have a loss.
Losses are recognized in full regardless of whether there is commercial exchange.
Campbell Corp. exchanged delivery trucks with Highway, Inc. Campbell's truck originally
cost $23,000, its accumulated depreciation was $20,000, and its fair value was $5,000.
Highway's truck originally cost $23,500, its accumulated depreciation was $19,900, and
its fair value was $5,700. Campbell also paid Highway $700 in cash as part of the
transaction. The transaction lacks commercial substance. What amount is the new book
value for the truck Campbell received?
When a transaction lacks commercial substance and cash is paid, the new asset is
recorded at the book value of the old asset plus any cash given. Campbell has the
same economic position as before the exchange - a different truck used in the same
manner and $700 less cash. The new truck is the BV of the old asset ($3,000) plus the
cash paid ($700) or $3,700
Amble, Inc. exchanged a truck with a carrying amount of $12,000 and a fair value of
$20,000 for a truck and $5,000 cash. The fair value of the truck received was $15,000.
At what amount should Amble record the truck received in the exchange assuming the
exchange lacks commercial substance?
There is an implied gain of $8,000, the difference between the $20,000 fair value of the
old asset and its $12,000 book value. Because the proportion of cash received is 25%
($5,000/$20,000), the entire gain is recognized and the acquired asset is recognized at
fair value ($15,000).
In an exchange of plant assets, Transit Co. received equipment with a fair value equal
to the carrying amount of equipment given up. Transit also contributed cash.
The exchange lacks commercial substance.
As a result of the exchange, Transit recognized
A. A loss equal to the cash given up.
B. A loss determined by the proportion of cash paid to the total transaction value.
C. A gain determined by the proportion of cash paid to the total transaction value.

D. Neither gain nor loss.

The fair value of the new asset equals the old asset's book value. Because cash was
paid, the fair value of the old asset is less than the fair value of the new asset.
Therefore, the fair value of the old asset is also less than the old asset's book value
resulting in a loss.
Using dollar amounts, assume the fair value of the new asset is $10. The book value of
the old asset is also $10 by assumption. Assume Transit paid $2 cash.
Then the fair value of the old asset is $8 implying a loss of $2, the amount of cash paid.
Even without commercial substance, losses are recognized in full
In a barter transaction where advertising services provided are exchanged for
advertising services received, under which of the following situations can the advertising
provider recognize revenue for the services performed? Assume the accounting is
under IFRS guidelines.
A. When the advertising services in the exchange are similar
B. When the fair value of the advertising services received can be reliably measured
C. When there is a nonbarter transaction for similar advertising services that can be
reliably measured with the same counterparty
D. When there is a nonbarter transaction for similar advertising services that can be
reliably measured with a different counterparty
The fair value of the advertising services provided can be reliably measured by
reference to a nonbarter transaction for similar advertising with a different count

The required disclosures involve the following four sources of risk and uncertainty. Each
is discussed in more detail later in this lesson.
1. Nature of the entity's operations;
2. Use of estimates in financial statements;
3. Certain significant estimates;
4. Current vulnerability due to significant concentrations in certain aspects of operations.
The requirements apply only to those included in the standard and not to risks and
uncertainties related to:
1. Management or key personnel;
2. Proposed changes in government regulations;
3. Proposed changes in accounting principles;
4. Deficiencies in internal control;
5. Possible effects of acts of God, war, sudden catastroph
Opto Co. is a publicly traded, consolidated enterprise reporting segment information.
Which of the following items is a required enterprise-wide disclosure regarding external
customers?The fact that transactions with a particular external customer constitute
more than 10% of the total enterprise revenues
The identity of any external customer providing 10% or more of a particular operating
segment's revenue
The identity of any external customer considered to be "major" by management
Information on major customers is not required in segment reporting.
Correct! This is one of the disclosures required in FAS 131. The identity of the customer
does not need to be disclosed, but the segment reporting the revenue must be
identified. Such a segment would meet one of the three quantitative thresholds for
reporting segment information. The three thresholds are 10% of revenue, income, and
assets.
Which of the following types of entities are required to report on business segments?
A. Nonpublic business enterprises
B. Publicly traded enterprises
C. Not-for-profit enterprises
D. Joint ventures
Correct!
FAS No. 131 requires that a public business enterprise report financial and descriptive
information about its reportable operating segments.