Question

Horton Stores exchanged land and cash of $5,300 for similar land. The book value and the fair value of the land were $88,400 and $100,800, respectively. Assuming that the exchange lacks commercial substance, Horton would record land-new and a gain/(loss) of: Land Gain/(loss) a. $ 106,100 $ 0 b. $ 106,100 $ 12,400 c. 93700 $ 0 d. $ 93,700 $ 12,400

Answer 1

Answer:

c.- 93,700  // 0

Explanation:

As it lacks commercial substance neither Horton nor the other parti will recognize gain/loss on the trade.

Horton will recognize the new land for the value traded without a gain/loss entry:

Land  93,700 (88,400 + 5,300 cash)  debit

   Cash              5,300 credit

   Land            88,400 credit

--to record trade of land without commercial subtance--