DD Ltd buys a block of land from BB Ltd by paying $95 000 cash and transferring a piece of equipment to BB Ltd.The equipment is recorded in DD Ltd's at $45 000 and it has a fair value of $55 000.DD Ltd pays $25 000 in estate agent's fees to arrange the transfer.Show the journal entries to record this transaction.
A)$\begin{array}{llc}
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Land } & 175000 & \
\text { Bank } & 120000 & \
\text { Equipment } & & 55000
\end{array}$

B)$\begin{array}{llc}
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Land } & 140000 & \
\text { Bank } & 95000 & \
\text { Equipment } & & 45000
\end{array}$

C)$\begin{array}{llc}
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Land } & 165000 & \
\text { Bank } & 120000 & \
\text { Equipment } & & 45000
\end{array}$
D)$\begin{array} { l l l }
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Land } & 175000 & \
\text { Bank } & 120000 & \
\text { Gain on sale of equipment } & & 10000 \
\text { Equipment } & & 45000
\end{array}$

Question

DD Ltd buys a block of land from BB Ltd by paying $95 000 cash and transferring a piece of equipment to BB Ltd.The equipment is recorded in DD Ltd's at $45 000 and it has a fair value of $55 000.DD Ltd pays $25 000 in estate agent's fees to arrange the transfer.Show the journal entries to record this transaction.
A)$\begin{array}{llc}
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Land } & 175000 & \
\text { Bank } & 120000 & \
\text { Equipment } & & 55000
\end{array}$

B)$\begin{array}{llc}
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Land } & 140000 & \
\text { Bank } & 95000 & \
\text { Equipment } & & 45000
\end{array}$

C)$\begin{array}{llc}
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Land } & 165000 & \
\text { Bank } & 120000 & \
\text { Equipment } & & 45000
\end{array}$
D)$\begin{array} { l l l } 
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Land } & 175000 & \
\text { Bank } & 120000 & \
\text { Gain on sale of equipment } & & 10000 \
\text { Equipment } & & 45000
\end{array}$

Quizplus · Accepted Answer

The correct journal entry should record the land at its total acquisition cost ($95,000 cash + $55,000 fair value of equipment + $25,000 estate agent's fees = $175,000). The cash (bank) payment is $95,000 plus $25,000 for the estate agent's fees, totaling $120,000. The equipment is removed from the books at its book value ($45,000), and the difference between the book value and the fair value ($55,000 - $45,000 = $10,000) is recognized as a gain on the sale of equipment.

DD Ltd Buys a Block of Land from BB Ltd