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. 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 $20,000 instead of $9,600. 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? Loss on exchange of assets 5,400 Initial value of new tractor

Answer 1

1)
Loss on exchange of assets
	Original Cost Of Tractor			$         34,000
	Less: Accumulated Depreciation			$         19,000
	Book Value Of Tractor			$         15,000
	Less: Fair Value			$           9,600
	Loss On Exhange			$           5,400
Initial value of new tactor
	Fair Value of tractor given			$           9,600
	Add: Cash Paid			$         26,000
	Initial value of new tractor			$         35,600
2)	The loss or gain from exchange of old tractor will be if fair value is $20000
	Original Cost Of Tractor			$         34,000
	Less: Accumulated Depreciation			$         19,000
	Book Value Of Tractor			$         15,000
	Less: Fair Value			$         20,000
	GAIN On   On Exhange			$           5,000