Entity A buys a piece of machinery for $250,000. To make the purchase, Entity A makes a cash payment of $150,000 and assumes $100,000 of debt from a local bank. Entity A sells the machinery a short time later for $140,000 in cash and settling the debt, which at the time requires $105,000. What is the fair value of the machinery?
A) $140,000
B) $150,000
C) $245,000
D) $250,000

Question

Quizplus · Accepted Answer

The fair value of the machinery is the amount that Entity A could sell it for in a normal transaction between unrelated parties. In this case, Entity A sold the machinery for $140,000 in cash and settled the debt, which at the time required $105,000. Therefore, the fair value of the machinery is $140,000 + $105,000 = $245,000.

Entity a Buys a Piece of Machinery for $250,000