Question

R&R Corporation trades a parcel of land to OBX Corp for a similar parcel of land. You may assume this transaction lacks commercial substance. The following information is applicable to this scenario:
Historical Cost of Old Land						$             300,000
Accumulated Depreciation - Old Land						$               80,000
Fair Value of Old Land						$             250,000
OBX paid Cash to R&R for the following amount in addition to trading their own parcel of land:
						$               50,000

8. What is the amount of gain or loss recognized from this non-monetary exchange? Enter a Gain as positive or a Loss as negative or Zero if neither is recognized. Enter the amount as a whole number with no symbols.

Answer 1

When a non monetary exchange lacks commercial substance the new asset is recorded at the carrying value given up of the old asset subtracting any cash received or adding any cash paid.

In the given situation carrying value of old land=Cost of land-Accumulated depreciation

=$300,000-$80,000

Carrying value of land=$220,000

Cash received=$50,000

New land to be recorded at=Carrying value of old land-Cash received

=$220,000-$50,000

New land recorded at=$170,000

Journal entry to record exchange as follows

Date	General Journal	Debit	Credit
	New land	$170,000
	Cash	$50,000
	Accumulated Depreciation	$80,000
	Old land		$300,000

So, No gain or loss is recognised on non monetary exchange of asset which lack commercial substance.

Gain or loss recognised=$0