Question

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 $30,000. According to an independent appraisal, the land currently is worth $72,000. Tinsley paid $14,000 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

Answer 1

Answer:

Missing word: 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.

1. Calculation of Fair value of New parcel land:

Market/fair value of old land    $72,000

Add: Additional cash given      $14,000

Fair value of new land             $86,000

2. Date  Account titles                           Debit        Credit

              Land - new                            $86,000

                     Cash                                                 $14,000

                     Land – old (Book value)                  $30,000

                     Gain (72000-30000)                       $42,000

3. Date  Account titles                             Debit        Credit

              Land – new (30000+14000)    $44,000

                      Cash                                                    $14,000

                      Land – old (book value)                     $30,000