Respuesta :
The amount of gain or loss that Kapono would recognize on the exchange of the tractor is: $3,800.
Gain or loss
Case A.
1. Amount of gain or loss
Book value of old tractor $13,000
Fair value of old tractor ($9,200)
Loss on exchange to recognized $3,800
Initial value
Fair value of old tractor $9,200
Cash paid to complete the exchange $22,000
Initial value of new tractor $31,200
2. Amount of gain or loss
Book value of old tractor $13,000
Fair value of old tractor $16,000
Gain on exchange to recognized $3,000
Initial value
Fair value of old tractor $16,000
Cash paid to complete the exchange $22,000
Initial value of new tractor $38,000
Case B
1. Amount of gain or loss
Book value of old farmland $510,000
Fair value of old farmland ($720,000)
Gain on exchange to recognized $210,000
Initial value
Fair value of old farmland $720,000
Cash paid to complete the exchange $52,000
Initial value of new land $772,000
2. Amount of gain or loss
Book value of old farmland $510,000
Fair value of old farmland $408,000
Loss on exchange to be recognized $102,000
Initial value
Fair value of old farmland $408,000
Cash paid to complete the exchange $52,000
Initial value of new land $460,000
3. Amount of gain or loss
Gain will not be recognized because the exchange lacked commercial substance.
Initial value
Book value of old farmland $510,000
Cash paid to complete the exchange $52,000
Initial value of new land $562,000
Therefore the amount of gain or loss that Kapono would recognize on the exchange of the tractor is: $3,800.
The complete question is:
Case A.
Kapono Farms exchanged an old tractor for a newer model. The old tractor had a book value of $13,000 (original cost of $30,000 less accumulated depreciation of $17,000) and a fair value of $9,200. Kapono paid $22,000 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 tractor?
2. Assume the fair value of the old tractor is $16,000 instead of $9,200. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new tractor?
Case B.
Kapono Farms exchanged 100 acres of farmland for similar land. The farmland given had a book value of $510,000 and a fair value of $720,000. Kapono paid $52,000 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 $408,000 instead of $720,000. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new land?
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?
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