Answer:
Kapono Farms
Case A:
a. The loss that Kapono would recognize on the exchange is:
= $6,600.
The initial value of the new tractor is:
= $38,900.
b. The gain that Kapono would recognize on the exchange is:
= $6,500.
The initial value of the new tractor, if cash payment of $29,000 was made, would be:
= $52,000.
Case B:
c. The amount of gain that Kapono would recognize on the exchange is:
= $245,000.
The initial value of the new land is:
= $790,000.
d. The amount of the loss that Kapono would recognize on the exchange of land is:
= $109,000.
The initial value of the new land is $495,000, if payment of $59,000 is made.
e. If the exchange lacked commercial substance, there is no gain or loss.
The initial value of the new land would be the book value of the old farmland, which is:
= $545,000.
Explanation:
a) Data and Calculations:
Book value of old tractor = $16,500 $16,500
Fair value of old tractor = 9,900 23,000
Loss from the exchange = $6,600 -6,500
Value of new tractor
Fair value of old tractor = $9,900 $23,000
Cash payment to complete 29,000 29,000
Value of new tractor $38,900 $52,000
Case B:
Book value of farmland = $545,000 $545,000
Fair value of farmland = 790,000 436,000
Gain from exchange = $245,000 $109,000
Value of New Farmland:
Fair value of old farmland $790,000 $436,000
Cash payment to complete 59,000 59,000
Value of new farmland = $849,000 $495,000
