Kapono Farms exchanged an old tractor for a newer model. The old tractor had a b
ID: 2424926 • Letter: K
Question
Kapono Farms exchanged an old tractor for a newer model. The old tractor had a book value of $14,000 (original cost of $32,000 less accumulated depreciation of $18,000) and a fair value of $9,400. Kapono paid $24,000 cash to complete the exchange. The exchange has commercial substance.
What is the amount of gain or loss that Kapono would recognize on the exchange?
1.2 What is the initial value of the new tractor?
Case B. Kapono Farms exchanged 100 acres of farmland for similar land. The farmland given had a book value of $520,000 and a fair value of $740,000. Kapono paid $54,000 cash to complete the exchange. The exchange has commercial substance.
What is the amount of gain or loss that Kapono would recognize on the exchange?
What is the amount of gain or loss that Kapono would recognize on the exchange?
What is the amount of gain or loss that Kapono would recognize on the exchange?
What is the amount of gain or loss that Kapono would recognize on the exchange?
1.1What is the amount of gain or loss that Kapono would recognize on the exchange?
1.2 What is the initial value of the new tractor?
Assume the fair value of the old tractor is $18,000 instead of $9,400. 2.1 2.2What is the initial value of the new tractor?Case B. Kapono Farms exchanged 100 acres of farmland for similar land. The farmland given had a book value of $520,000 and a fair value of $740,000. Kapono paid $54,000 cash to complete the exchange. The exchange has commercial substance.
Required: 1.1What is the amount of gain or loss that Kapono would recognize on the exchange?
What is the initial value of the new land? Assume the fair value of the farmland given is $416,000 instead of $740,000.What is the amount of gain or loss that Kapono would recognize on the exchange?
What is the amount of gain or loss that Kapono would recognize on the exchange?
Repeat requirement 1 of case B, assuming that the exchange lacked commercial substance. 3.1What is the amount of gain or loss that Kapono would recognize on the exchange?
What is the initial value of the new land?Explanation / Answer
1.1
book value of tractor=$14,000
Fair value for exchange=$9,400
loss on exchange=$14,000-$9,400=$4,600
NEw cost of the tractor=Fair value+Cash paid for exchange=$9,400+$24,000=$33,400
1.2 if fair value of the asset=$18,000
then Gain=$18,000-$14,000=$4,000
NEw cost of the tractor=Fair value+Cash paid for exchange=$18,000+$24,000=$42,000
2.1 land book value=$520,000
Fair value of land=$740,00
gain on exchange=$740,000-$520,000=$220,000
New land cost=Fair value+Cash paid for exchange=$740,000+$54,000=$794,000
2.2 if fair value is $416,000 instead of $740,000
loss on exchange=-$416,000+$520,000=$104,000
new land cost=$416,000+$54,000=$470,000
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