# Chapter 10SpicelandClass Problem on Nonmonetary Asset ExchangeSolutions

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Chapter 10 Solution for Class Problem on Nonmonetary Asset Exchange a. Fair value of old land + Cash given = F air value of new land \$72,000 + \$14,000 = \$86,000 b. Exchange has commercial substance. Cash paid. Land—new (calculated above) ........................................... 86,000 Land—old (remove account balance) ............................... 30,000 Cash ............................................................................ 14,000 Gain on exchange of assets (\$72,000 FV - \$30,000 BV) . 42,000 c. Exchange lacks commercial substance. Cash paid. Land—new (\$30,000 BV given + \$14,000 paid) ................... 44,000 Land—old (remove account balance) ............................... 30,000 Cash ............................................................................ 14,000 d. Exchange lacks commercial substance. Cash received. Land—new (see below) ..................................................... 26,250 Cash ................................................................................ 9,000 Land—old (remove account balance) ............................... 30,000 Gain on exchange of assets ( see below ) ........................ 5,250 Calculations for Question (d): Total Gain = 72,000 - 30,000 = 42,000 Fair Value of New Land = FV of Old Land - Cash recd. = 72,000 - 9,000 = 63,000 Proportion of Total Gain recognized = Cash Received ÷ (Cash Received + FV of New Land) = 9,000 ÷ (9,000 + 63,000) = 9,000 ÷ 72,000 = 0.125 or 12.5% Gain recognized = 42,000 x 0.125 = 5,250 Land ―New = \$30,000 BV of old land + \$5,250 gain recognized - \$9,000 cash received = 26,250
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