
(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
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 valued at the book value of the old non-monetary asset.
To determine: The fair value of the new parcel land, which is received by Company T.
(1)

Explanation of Solution
This is an exchange which has commercial substance. Thus, the fair value of new land is equivalent to the sum of fair value of old land and amount of cash paid in addition to the exchange.
Hence, the fair value of the new parcel land is $86,000.
(2)
To prepare: The
(2)

Explanation of Solution
Prepare an entry to record the exchange of old land for new land, which has commercial substance.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Land – New | 86,000 | |||
Cash | 14,000 | |||
Land – Old | 30,000 | |||
Gain on trade-in (Balancing figure) | 42,000 | |||
(To record the exchange of old land for new land, which has commercial substance) |
Table (1)
- Land is an asset account; purchase of new land is debited to increase its value by $86,000.
- Cash is an asset account, which is decreased by $14,000. Hence, it is credited by $14,000.
- Old land is exchanged for new land. Hence, old land is credited to decrease its balance by $30,000 (original cost).
- Value of new land received is higher than the fair value of old land plus payment of cash by $42,000. Hence, gain on trade in account is credited with $42,000.
(3)
To prepare: The journal entry, to record the exchange of old land for new parcel land, assumes that the exchange lacks commercial substance.
(3)

Explanation of Solution
Prepare an entry to record the exchange of old land for new land,assume that the exchange lacks commercial substance.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Land – New | 44,000 | |||
Cash | 14,000 | |||
Land – Old | 30,000 | |||
(To record the exchange of old land for new land, which lacks commercial substance) |
Table (2)
This exchange lacks commercial substance. Thus, the fair value of new land is equivalent to the sum of book value of old land and amount of cash paid in addition to the exchange.
- Land is an asset account; purchase of new land is debited to increase its value by $44,000.
- Cash is an asset account, which is decreased by $14,000. Hence, it is credited by $14,000.
- Old land is exchanged for new land. Hence, old land is credited to decrease its balance by $30,000 (original cost).
(4)
To prepare: The journal entry, to record the exchange of old land for new parcel land, which lacks commercial substance.
(4)

Explanation of Solution
Prepare an entry to record the exchange of old land for new land, which lackscommercial substance.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Land – New (Balancing figure) | 22,500 | |||
Cash | 18,000 | |||
Land – Old | 30,000 | |||
Gain on trade-in | 10,500 | |||
(To record the exchange of old land for new land, which lacks commercial substance) |
Table (3)
Working note:
Calculate the gain on trade in.
- Land is an asset account; purchase of new land is debited to increase its value by $22,500.
- Cash is an asset account, which is increased by $18,000. Hence, it is debited by $18,000.
- Old land is exchanged for new land. Hence, old land is credited to decrease its balance by $30,000 (original cost).
- Value of new land received plus cash received is higher than the fair value of old land. Hence, gain on trade in account is credited with $10,500.
Want to see more full solutions like this?
Chapter 10 Solutions
Intermediate Accounting
- In 2022, North Shore Community College had a total student body that was 5% more than in 2021, which was 5% more than in 2020. The enrollment in 2022 was 4,200. How many students attended the college in 2021? How many students attended the college in 2020?arrow_forwardWhen iam uploading it getting blurr comment i will write values. Don't answer with incorrect dataarrow_forwardSolve correctly if image is blurry comment..arrow_forward
- If data is not clear please commentarrow_forwardPlease don't use AI And give correct answer .arrow_forwardLouisa Pharmaceutical Company is a maker of drugs for high blood pressure and uses a process costing system. The following information pertains to the final department of Goodheart's blockbuster drug called Mintia. Beginning work-in-process (40% completed) 1,025 units Transferred-in 4,900 units Normal spoilage 445 units Abnormal spoilage 245 units Good units transferred out 4,500 units Ending work-in-process (1/3 completed) 735 units Conversion costs in beginning inventory $ 3,250 Current conversion costs $ 7,800 Louisa calculates separate costs of spoilage by computing both normal and abnormal spoiled units. Normal spoilage costs are reallocated to good units and abnormal spoilage costs are charged as a loss. The units of Mintia that are spoiled are the result of defects not discovered before inspection of finished units. Materials are added at the beginning of the process. Using the weighted-average method, answer the following question: What are the…arrow_forward
- General accountingarrow_forwardFinancial accounting questionarrow_forwardOn November 30, Sullivan Enterprises had Accounts Receivable of $145,600. During the month of December, the company received total payments of $175,000 from credit customers. The Accounts Receivable on December 31 was $98,200. What was the number of credit sales during December?arrow_forward