Question

Bloomington Inc. exchanged land for equipment and $3,000 in cash. The book value and the fair value of the land were $104,000 and $90,000, respectively.Bloomington would record equipment at and record a gain/(loss) of   Equipment Gain/Lossa. $87,000 $3,000b. $104,000 $(5,000)c. $87,000 $(14,000)d. None of the above.

Answer 1

The correct answer is $87,000 and $3,000.

When Bloomington Inc. exchanged land for equipment and $3,000 in cash, they received equipment with a fair value of $90,000. The book value of the land was $104,000, so Bloomington Inc. recorded a gain of $14,000 on the exchange. The gain is calculated as the difference between the fair value of the equipment received and the book value of the land given up.

The journal entry to record the exchange is as follows:

Debit | Credit

------- | --------

Equipment | $90,000

Cash | $3,000

Land | $104,000

Gain on Exchange of Assets | $14,000

The equipment is recorded at its fair value of $90,000. The cash is recorded at its face value of $3,000. The land is recorded at its book value of $104,000. The gain on exchange of assets is recorded at $14,000.