Case A (Requirement (1))
Nonmonetary Exchange
Exchange of non-monetary assets for another non-monetary asset is known as nonmonetary exchange.
Exchange has commercial substance:
If an exchange (Example: exchange of land for another non-monetary asset other than land) is likely to have a change in the future cash flows, then it is known as exchange has commercial substance. In this case, an exchange of non-monetary assets, which have commercial substance, is recorded at its fair value, and then resulted gain or loss must be recognized by determining the difference between the fair value and book value.
Exchange lacks commercial substance:
If an exchange (Example: exchange of land for another land) is expected that it will not change the future cash flows, then such exchange is known as exchange lacks commercial substance. In this case, an exchange lacks commercial substance; therefore new non-monetary asset would be value at the book value of the old non-monetary asset.
To determine: The amount of gain or loss that K Farms would recognize on the exchange of tracker, and also determine the initial value of the new tractor.
Case A Requirement (2)
The amount of gain or loss that K Farms would recognize on the exchange of tracker, and also determine the initial value of the new tractor (Assume, the fair value of the old tractor is $14,000).
Case B (Requirement (1))
The amount of gain or loss that K Farms would recognize on the exchange of land, and also determine the initial value of the new land.
Case B (Requirement (2))
The amount of gain or loss that K Farms would recognize on the exchange of land, and also determine the initial value of the land (Assume that the fair value of the old land is $400,000).
Case B (Requirement (3))
The amount of gain or loss that K Farms would recognize on the exchange of land, and also determine the initial value of the land (Assume that the exchange lacks commercial substance).
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INTERMEDIATE ACCOUNTING(LL)-W/CONNECT
- Testbank Multiple Choice Question 94 Sheffield Inc. and Pharoah Co. have an exchange with no commercial substance. The asset given up by Sheffield Inc. has a book value of $55000 and a fair value of $90000. The asset given up by Pharoah Co. has a book value of $120000 and a fair value of $105000. Boot of $25000 is received by Pharoah Co. What amount should Sheffield Inc. record for the asset received? O $105000 O $80000 O $120000 O $90000arrow_forwardQ A company exchanged old equipment and $18,000 cash for similar equipment. The book value and the fair value of the old equipment were $82,000 and $90,000, respectively. Assuming that the exchange lacks commercial substance, the company would record a gain(loss) on exchange of assets in the amount of: Multiple Choice $8,000. ($8,000). $26,000. $0.arrow_forwardPROBLEM 3 Bea Co. had a machine with a carrying amount of P450,000. Jane Co. had a delivery vehicle with a carrying amount of P300,000. Bea and Jane Co. exchanged the machine and vehicle, and Jane Co. paid an additional P90,000 cash as part of the exchange. Assume that the fair value of the delivery vehicle is P420,000. The exchange has commercial substance. Required 1. How much gain or loss should be recorded by Bea Co? 2. How much gain or loss should be recorded by Jane Co.?arrow_forward
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- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT