Question

[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 $17,000 (original cost of $38,000 less accumulated depreciation of $21,000) and a fair value of $10,000. Kapono paid $30,000 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 $550,000 and a fair value of $800,000. Kapono paid $60,000 cash to complete the exchange. The exchange has commercial substance.

Assume the fair value of the farmland given is $440,000 instead of $800,000. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new land?

Assume the fair value of the farmland given is $440,000 instead of $800,000. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new land?

	Initial value of new land

Answer 1

1) Assuming Fair value is $440000 instead of $800000
Loss On exchange =Book Value - Fair Value
	=$550000-440000
Loss	$         1,10,000
The initial value of the new land bought
	Fair Value of land sold			$ 4,40,000
	Add: Cash Paid			$      60,000
	Initial value of new land			$ 5,00,000