Question

Bloomington Inc. exchanged land for equipment and $2,700 in cash. The book value and the fair value of the land were $105,400 and $89,900, respectively. Assuming that the exchange has commercial substance, Bloomington would record equipment and a gain/(loss) on exchange of assets in the amounts of: Equipment Gain/(loss) a. $ 87,200 $ 2,700 b. $ 105,400 $ (2,700 ) c. $ 87,200 $ (15,500 ) d. None of these answer choices are correct.

Answer 1

Answer:

The answer is c. Equipment: 87,200; Gain/(loss): (15,500).

Explanation:

Since the exchange has commercial substance,

- Fair value of the equipment is equal to: Fair value of the land - Cash consideration receipt = 89,900 - 2,700 = $87,200.

- The disposal of land in the Balance sheet following the exchange needs to account for the differences between Book value of land and Fair value of land. Since Fair value is now smaller than Book Value, a Loss has to be recognized at the amount calculated as (Fair value - Book value) = (89,900 - 105,400) = $(15,500).

Thus, the answer is c. $87,200 $(15,500).