6 Case A. Kapono Farms exchanged an old tractor for a newer model. The old tract
ID: 2573341 • Letter: 6
Question
6 Case A. Kapono Farms exchanged an old tractor for a newer model. The old tractor had a book value of $20,000 (original cost of $44,000 less accumulated depreciation of $24,000) and a fair value of $10,600. Kapono paid $36,000 cash to complete the exchange. The exchange has commercial substance. 0.9 points Required 1. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new tractor? 2. Assume the fair value of the old tractor is $30,000 instead of $10,600. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new tractor? eBook Complete this question by entering your answers in the tabs below Ask Required 1 Required 2 Print What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new tractor? References Initial value of new tractor Required 1 Required 2>Explanation / Answer
Case A.
1.
Book value - Fair value = Loss on exchange
20000 - 10600 = $9400
Fair value of old tractor + cash given = Initial value of new tractor
10600 + 36000 = $46600
2.
Fair value - Book value = Gain on exchange
30000 - 20000 = $10000
Fair value of old tractor + cash given = Initial value of new tractor
30000 + 36000 = $66000
Case B.
1.
Fair value - Book value = Gain on exchange
860000 - 580000 = $280000
Fair value of old land + Cash given = Initial value of new land
860000 + 66000 = $926000
2.
Book value - Fair value = Loss on exchange
580000 - 464000 = $116000
Fair value of old land + Cash given = Initial value of new land
464000 + 66000 = $530000
3.
If the exchange lacked commercial substance, no gain is recognized.
Book value of old land + Cash given = Initial value of new land
580000 + 66000 = $646000
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