Reference no: EM132489306
Two independent companies, Sheridan Co. and Pharoah Co., are in the home building business. Each owns a tract of land held for development, but each would prefer to build on the other's land. They agree to exchange their land. An appraiser was hired, and from her report and the companies' records, the following information was obtained:
Sheridan's Land Pharoah's Land
Cost and book value $547000 $366000
Fair value based upon appraisal 727000 642000
The exchange was made, and based on the difference in appraised fair values, Pharoah paid $85000 to Sheridan. The exchange lacked commercial substance.
Question 1: The new land should be recorded on Pharoah's books at
$706000.
$451000.
$621000.
$366000.
Question 2: Waterway Industries traded machinery with a book value of $935980 and a fair value of $883000. It received in exchange from Pharoah Company a machine with a fair value of $971300. Waterway also paid cash of $97130 in the exchange. Pharoah's machine has a book value of $935980. What amount of gain or loss should Waterway recognize on the exchange (assuming lack of commercial substance)?
$52980 loss
$ -0-
$97130 gain
$5298 loss
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