Question

The Tinsley Company exchanged land that it had been holding for future plant expansion for a more suitable parcel located farther from residential areas. Tinsley carried the land at its original cost of $87,500. According to an independent appraisal, the land currently is worth $210,000. Tinsley paid $30,000 in cash to complete the transaction.

Required: 1. What is the fair value of the new parcel of land received by Tinsley assuming the exchange has commercial substance?

2. Prepare the journal entry to record the exchange assuming the exchange has commercial substance.

3. Prepare the journal entry to record the exchange assuming the exchange lacks commercial substance.

4. Prepare the journal entry to record the exchange except that Tinsley received $42,000 in the exchange, and the exchange lacks commercial substance.

Answer 1

1 fair value of old land & cash given = fou of new tand f.v 0F new land - 210000 + 30000 = 240000 2) Exchange Debit credit hand-new (210000 + 3.000 240000 30000 87500 cash land-old Gain (210000-87500) 122500 3) Exchange lacks 117.500 land-new ( 97500+30000) 30000 cash (and-old 87500