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31 December, 04:14

Two construction companies, Dakota and Carolina, are in the construction business. Each owns a tract of land being held for development, but each company believes that the other's land is better suited to enhance the success of each planned development. Accordingly, they agree to exchange their land and have the following information:

Dakota's Carolina's

Land Land

Cost and book value $400,000 $250,000

Fair value based upon appraisal $500,000 $450,000

The exchange of land was made, and based on the difference in appraised fair value, Carolina paid $50,000 cash to Dakota.

Refer to Exhibit 10-1. After the exchange, Dakota should record its newly acquired land on its books at

a. $400,000

b. $300,000

c. $500,000

d. $450,000

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Answers (1)
  1. 31 December, 04:18
    0
    d. $450,000

    Explanation:

    Land of both Dakota and Carolina will be recorded on fair value rather than their cost or book value in their books.

    Dakota will record Land at $500,000 and

    Carolina will record Land at $450,000

    On Exchange Dakota will get $50,000 as cash and Land valued on $450,000

    So Dakota will record its newly acquired land in its books on fair value i. e $450,000
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