Exhibit 10-1 Two construction companies, Fargo and Rambam, 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:
$\begin{array}{lll}
&\text {Fargo's}&\text { Rambam's}\
&\text {Land}&\text {Land}\
\text { Cost and book value } & \$ 400,000 & \$ 250,000 \
\text { Fair value based upon appraisal } & \$ 500,000 & \$ 450,000
\end{array}$ The exchange of land was made, and based on the difference in appraised fair value, Rambam paid $50, 000 cash to Fargo.
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Refer to Exhibit 10-1.For financial reporting purposes, Fargo should recognize a gain on this exchange in the amount of

Question

Quizplus · Accepted Answer

Fargo's land had a book value of $400,000 and a fair value of $500,000. The exchange was made with Rambam, where Rambam also paid $50,000 cash to equalize the fair value difference. Therefore, Fargo should recognize a gain of $100,000 ($500,000 fair value - $400,000 book value).

Exhibit 10-1 Two Construction Companies, Fargo and Rambam, Are in the Construction