# Question: Case A Kapono Farms exchanged an old tractor for a

Case A. Kapono Farms exchanged an old tractor for a newer model. The old tractor had a book value of \$12,000 (original cost of \$28,000 less accumulated depreciation of \$16,000) and a fair value of \$9,000. Kapono paid \$20,000 cash to complete the exchange. The exchange has commercial substance.

Required:
1. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new tractor?
2. Repeat requirement 1 assuming that the fair value of the old tractor is \$14,000 instead of \$9,000.

Case B. Kapono Farms exchanged 100 acres of farmland for similar land. The farmland given had a book value of \$500,000 and a fair value of \$700,000. Kapono paid \$50,000 cash to complete the exchange. The exchange has commercial substance.

Required:
1. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new land?
2. Repeat requirement 1 assuming that the fair value of the farmland given is \$400,000 instead of \$700,000.
3. Repeat requirement 1 assuming that the exchange lacked commercial substance.

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