Question

Scenario 1:

Southern Company owns a building (Bldg. A) that is leases to others. Bldg. A's FV = $2,000,000 and its BV=$1,280,000 (OG cost of $2,600,000 less accumulated depreciation of $1,320,000). Southern exchanges this for a bldg. owned by the Eastern Co. (Bldg. B). Eastern also gives Southern $200,000 to complete the exchange

1)Assume the exchange has commercial substance, on Southern's book,

a)The amount recorded into new asset will be:

b)The amount of gain/loss on exchange will be:

2)Assumer the exchange lacks commercial substance, on Southern's book,

a)the amount recorded into new asset will be:

b)The amount of gain/loss on exchange will be:

Scenario 2:

Eastern Co. owns a bldg. (bldg. B) that it leases to others. Bldg. B's BV is $1,430,000 (OG cost of $2,200,000 less accumulated depreciation of $770,00). Eastern exchanges this for a bldg. owned by the Southern Co. (Bldg. A). The FV of Bldg. A is $2,000,000. Eastern also gives Southern $200,000 to complete the exchange

1)Assume the exchange has commercial substance, on Eastern's book,

a)The amount recorded into new asset will be:

b)The amount of gain/loss on exchange will be:

2)Assumer the exchange lacks commercial substance, on Eastern's book,

a)the amount recorded into new asset will be:

b)The amount of gain/loss on exchange will be:

Answer 1

Scenario-1:
Answer-1(a):
Value of new building = Building A's Fair value - Cash paid
= $2,000,000 - 200,000 = $1,800,000
Answer-1(b):
Gain on exchange = Building A's Fair value - Book value of building A
= $2,000,000 - 1,280,000 = $720,000
Answer-2(a):
Value of new building = Building A's Fair value - Cash paid
= $2,000,000 - 200,000 = $1,800,000
Answer-2(b):
Gain on exchange = $0