Dalta Co., exchanged equipment with a fair value of $75,000 plus a cash payment of...
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Dalta Co., exchanged equipment with a fair value of $75,000 plus a cash payment of $10,000 for equipment with a fair value of $85,000 owned by Mega Co. in 2020. Dalta anticipated an increase in cash flow as a result of the exchange. Dalta's equipment originally cost $200,000. It had been depreciated down to its expected residual value of $45,000. Mega's equipment had a net book value of $100,000 (original cost of $250,000.)
(a) What does "Dalta anticipated an increase in cash flow as a result of the exchange" or "The exchange had no effect on either companys cash flows" mean? Is it related to determine the commercial substance? Please help explain.
(b) How much gain or loss did Dalta report in its income statement for 2020?
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