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 $15,000 (original cost of $34,000 less accumulated depreciation of $19,000) and a fair value of $9,600. Kapono paid $26,000 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 $530,000 and a fair value of $760,000. Kapono paid $56,000 cash to complete the exchange. The exchange has commercial substance. 1. What is the amount of gain or loss that Kapono would recognize on the exchange of the land? 2. Assume the fair value of the farmland given is $424,000 instead of $760,000. What is the amount of gain or loss that Kapono wou recognize on the exchange? What is the initial value of the new land? 3. Assume the same facts as Requirement 1 and that the exchange lacked commercial substance. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new land? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Assume the same facts as Requirement 1 and that the exchange lacked commercial substance. 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

Please give positive ratings so I can keep answering. It would help me a lot. Please comment if you have any query. Thanks!

Kapono
When the exchange has commercial substance then it means that future cash floes will change. Ibn that case accounting should be done at fair value.
Answer 1	Amount $
Fair value of land	760,000.00
Less: Book value of land	530,000.00
Gain on sale of land	230,000.00
Answer 2
Fair value of land	424,000.00
Less: Book value of land	530,000.00
Loss on sale of land	(106,000.00)
Initial value of land
Fair value of land sold	424,000.00
Add: cash paid to complete the exchange	56,000.00
Initial value of land	480,000.00
Answer 3
When the exchange lacks commercial substance then in case of gain accounting should be done at book value and not fair value. Gains are also not recorded in this case.
So,	Amount $
Fair value of land	530,000.00
Less: Book value of land	530,000.00
Gain on sale of land	-
Initial value of land
Book value of land	530,000.00
Add: cash paid to complete the exchange	56,000.00
Initial value of land	586,000.00