Question

Required information [The following information applies to the questions displayed below.) Case A. Kapono Farms exchanged an old tractor for a newer model. The old tractor had a book value of $21,000 (original cost of $46,000 less accumulated depreciation of $25,000) and a fair value of $10,800. Kapono paid $38,000 cash to complete the exchange. The exchange has commercial substance. Case B. Kapono Farms exchanged 100 acres of farmland for similar land. The farmland given had a book value of $590,000 and a fair value of $880,000. Kapono paid $68,000 cash to complete the exchange. The exchange has commercial substance, Required: 1. What is the amount of gain or loss that Kapono would recognize on the exchange of the tractor? 2. Assume the fair value of the old tractor is $32,000 instead of $10,800. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new tractor? Complete this question by entering your answers in the tabs below. Required 1 Required 2 What is the amount of gain or loss that Kapono would recognize on the exchange of the tractor? Initial value of new tractor Required 1 Required 2 >

Answer 1

1)
The loss or gain from the exchange of old tractor will be
	Original Cost Of Tractor			$ 46,000
	Less: Accumulated Depreciation			$ 25,000
	Book Value Of Tractor			$ 21,000
	Less: Fair Value			$ 10,800
	Loss On Exchange			$ 10,200
2)	The loss or gain from the exchange of old tractor will be if fair value is $26000
	Original Cost Of Tractor			$ 46,000
	Less: Accumulated Depreciation			$ 25,000
	Book Value Of Tractor			$ 21,000
	Less: Fair Value			$ 32,000
	GAIN On   On Exchange			$ 11,000
	A new tractor has been exchanged for an old one. Cash of $32000 has been paid.
	Thus the cost of a new truck will be the fair value of old truck plus cash paid.
	Therefore the initial value of the new tractor would be
	Fair Value of old tractor			$ 32,000
	Add: Cash Paid			$ 38,000
	Value Of New Tractor			$ 70,000
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