Melvin and Vivian Nonmonetary Transaction

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Case 8
RE: Melvin Corporation and Vivian Company Nonmonetary Transaction Facts: Melvin Corporation and Vivian Company entered into an agreement on January 1, Year 1, to unconditionally exchange assets. Melvin agreed to transfer, on January 1 of Year 2, a building that cost $100,000, but had an appraised value of $300,000, while Vivian agreed to transfer a boat that had originally cost $250,000. As of December 31, Year 2, Melvin had received title to the boat but had not transferred title to the building. Issues:

(1)Does the uncompleted transaction qualify as a reciprocal nonmonetary exchange? (2)How should the transaction be recorded for each entity?
Conclusions:
(1)The transaction does not qualify as a reciprocal nonmonetary exchange since Melvin Corporation has not yet transferred title to the building. (2)As the recipient of an asset in a nonreciprocal nonmonetary exchange, Melvin Corporation should record the boat by its estimated fair value at the time it is received. As the transferor of an asset in a nonmonetary transaction, Vivian Company should record a loss on the transfer of the disposed asset. Authorities on Costs to Exit a Lease Contract

A summary of the relevant ASC literature regarding nonmonetary exchanges follows: ASC 845-10-25-1 states that a reciprocal transfer of a nonmonetary asset qualifies as an exchange only if the transferor has no substantial continuing involvement in the transferred asset. ASC 845-10-20 defines the term nonreciprocal transfer as a transfer of assets or services in one direction. ASC 845-10-30-1 states that for a nonreciprocal transfer, the recipient of the asset should record the transferred asset at its fair value; the transferor of the asset should recognize a gain or loss on the disposition of the asset. Application of authorities:

(1)Since Melvin still has an outstanding obligation to transfer the building to Vivian, the transaction does not meet the FASB requirements of a reciprocal exchange. (2)...
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