Reference no: EM132731013

DOSAN CORPORATION and DALMI COMPANY decided to exchange machineries on January 1, 2020. The machine of DOSAN (Machine X) was purchased in January 1, 2017 for $1,000,000. The estimated useful life of the machine is 10 years, with no residual value. On the date of the exchange, Machine X's fair value is $680,000. DALMI's machine (Machine Y) was purchased on January 1, 2019, for $2,500,000. The estimated useful life of the machine is 5 years, with no residual value. The fair value of Machine Y on the date of exchange is $2,100,000. Because of the difference in the fair values, included in the agreement is a stipulation wherein DOSAN shall pay an $1,500,000. The exchange is considered to be with commercial substance.

DETERMINE THE FOLLOWING:

Problem 1: Amount that DALMI COMPANY initially recognize Machine X?

A. $600,000
B. $2,000,000
C. $680,000
D. $2,100,000

Problem 2: The gain(loss) from exchange that should be recognized by DOSAN Company

A. 20,000 loss
B. 80,000 gain
C. 20,000 gain
D. 1,500,000 loss