Two construction companies, Harglo and Kalman, are in the construction business. Each owns a tract of land being held for development, but each company would prefer to build on the other's land. Accordingly, they agree to exchange their land, and have the following information: Harglo's Kalman's Land Land Cost and book value $150,000 $100,000 Fair value based upon appraisal $200,000 $160,000 The exchange of land was made, and, based on the difference in appraised fair value, Kalman paid $40,000 cash to Harglo. 3. For financial reporting purposes, Harglo would recognize a gain on this exchange in the amount of a. $0 b. $6,000 c. $10,000 d. $40,000
Two construction companies, Harglo and Kalman, are in the construction business. Each owns a tract of land being held for development, but each company would prefer to build on the other's land. Accordingly, they agree to exchange their land, and have the following information:
Harglo's Kalman's
Land Land
Cost and book value $150,000 $100,000
Fair value based upon appraisal $200,000 $160,000
The exchange of land was made, and, based on the difference in appraised fair value, Kalman paid $40,000 cash to Harglo.
3. For financial reporting purposes, Harglo would recognize a gain on this exchange in the amount of
a. $0
b. $6,000
c. $10,000
d. $40,000
4. For financial reporting purposes, Kalman would recognize a gain on this exchange in the amount of
a. $0
b. $20,000
c. $30,000
d. $60,000
5. After the exchange, Harglo would record its newly acquired land on its books at
a. $120,000
b. $102,000
c. $136,000
d. $166,000
Example
Two construction companies, Harglo and Kalman, are in the construction business. Each owns a tract of land being held for development, but each company would prefer to build on the other's land. Accordingly, they agree to exchange their land, and have the following information:
Harglo's Kalman's Land Land
Cost and book value $160,000 $100,000
Fair value based upon appraisal $200,000 $170,000
The exchange of land was made, and, based on the difference in appraised fair value, Kalman paid $30,000 cash to Harglo.
23. For financial reporting purposes, Harglo would recognize a gain on this exchange in the amount of
a. $0
b. $6,000
c. $20,000
d. $40,000
24. For financial reporting purposes, Kalman would recognize a gain on this exchange in the amount of
a. $0
b. $20,000
c. $30,000
d. $60,000
25. After the exchange, Harglo would record its newly acquired land on its books at
a. $ 90,000
b. $102,000
c. $136,000
d. $166,000
Q23.
Commercial substance: no
Cash boot received: yes
recognize a portion of gain
Original gain = FV of the surrendered land – BV of the surrendered land
= 200,000 – 160,000 = 40,000
Portion of gain recognized = cash received / (asset received + cash received) *
original gain = 30,000 / (170,000 + 30,000) * 40,000 = 6,000
Q24.
Commercial substance: no
Cash boot received: no
no gain can be recognized
Q25.
New land 136,000
Accumulated depreciation 0
Cash 30,000
Old land 160,000
Gain 6,000
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
