Please help solve Question 2.

1. Assume Target acquires a tract of land on January 1, 2020, for

$109,000 cash. On December 31, 2020, the current market value of the land is

$143,000. On December 31, 2021, the current market value of the land is $119,000.

The firm sells the land on December 31, 2022, for $178,000 cash. Ignoring income

taxes, complete the following items.

2. Refer to the previous problem. Assume that Target has accounted

for the value of the land at acquisition cost and sells the land on December 31, 2022, for

a two-year note receivable with a present value of $178,000 instead of for cash. The

note bears interest at 8% and requires cash payments of $99,817 on December 31,

2023 and 2024. Interest rates for notes of this risk level increase to 10% on December

31, 2023, resulting in a market value for the note on this date of $90,743. Ignoring

income taxes, complete the following items.

(a) Assuming valuation of the note at the present value of future cash flows using

the historical market interest rate of 8% (Approach 1), indicate the dollar effect of

the information on net income for:

1. 2023, and

2. 2024.

(b) Assuming valuation of the note at the present value of future cash flows,

adjusting the note to fair value upon changes in market interest rates and

including unrealized gains and losses in net income (Approach 2) ), indicate the

dollar effect of the information on net income for:

1. 2023, and

2. 2024.