Homework SourseThe Tinsley Company exchanged land that it had been holding
The Tinsley Company exchanged land that it had been holding for future plant expansion for a more suitable parcel located farther from residential areas. Tinsley carried the land at its original cost of $43,750. According to an independent appraisal, the land currently is worth $105,000. Tinsley paid $15,000 in cash to complete the transaction.
Required:
1. What is the fair value of the new parcel of land received by Tinsley assuming the exchange has commercial substance?
2. Prepare the journal entry to record the exchange assuming the exchange has commercial substance.
3. Prepare the journal entry to record the exchange assuming the exchange lacks commercial substance.
4. Prepare the journal entry to record the exchange except that Tinsley received $21,000 in the exchange, and the exchange lacks commercial substance.
Solution
1. Fair value: $120000
Fair value of new parcel of land = Fair value of old parcel of land + Cash paid = $105000 + $15000 = $120000
| Account Titles and Explanation | Debit | Credit | |
| 2 | Land (new) | 120000 | |
| Gain on disposal of land | 61250 | ||
| Land (old) | 43750 | ||
| Cash | 15000 | ||
| (To record exchange of land) | |||
| 3 | Land (new) | 58750 | |
| Land (old) | 43750 | ||
| Cash | 15000 | ||
| (To record exchange of land) | |||
| 4 | Land (new) | 22750 | |
| Cash | 21000 | ||
| Land (old) | 43750 | ||
| (To record exchange of land) |
