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
