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 $30,000. According to an independent appraisal, the land
currently is worth $72,000. Tinsley paid $14,000 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 $9,000 in the
exchange, and the exchange lacks commercial substance.
1.Fair value of the new parcel of land received by Tinsley assuming the exchange has commercial substance
= cost estimated by independent appraisal + cash paid
=$72000 + $14000 = $86,000
2. Journal entry to record the exchange assuming the exchange has commercial substance.
3. Journal entry to record the exchange assuming the exchange lacks commercial substance.
Particulars | Debit | Credit |
2. New land | $86,000 | |
Gain on exchange | $42,000 | |
Cash paid | $14,000 | |
Old land | $30,000 | |
(Being exchanged of land recorded) | ||
3. New land | $44,000 | |
Cash paid | $14000 | |
Old land | $30,000 | |
(being exchange of old land) | ||
4. New land | 30,116.28 | |
Cash | 9000 | |
Old land | 30,000 | |
Exchange gain (FV-BV)/FV*cash received = $86000-30,000/86000*14000 | 9116.28 | |
The Tinsley Company exchanged land that it had been holding for future plant expansion for a...
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