Use the following information for questions
Two independent companies, Mintz Co.and Pine 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: $$\begin{array} { l r r }
& \text { Mintz's Land } & \text { Pine's Land } \\hline
\text { Cost and book value } & \$ 192,000 & { \$ 120,000 }\
\text { Fair value based upon appraisal } & 240,000 & 210,000
\end{array}$$ The exchange was made, and based on the difference in appraised fair values, Pine paid $30,000 to Mintz.The exchange lacked commercial substance.
-For financial reporting purposes, Mintz should recognize a pre-tax gain on this exchange of

Question

Use the following information for questions 
Two independent companies, Mintz Co.and Pine 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: $$\begin{array} { l r r } 
& \text { Mintz's Land } & \text { Pine's Land } \\hline
\text { Cost and book value } & \$ 192,000 &  { \$ 120,000 }\
\text { Fair value based upon appraisal } & 240,000 & 210,000
\end{array}$$ The exchange was made, and based on the difference in appraised fair values, Pine paid $30,000 to Mintz.The exchange lacked commercial substance.
-For financial reporting purposes, Mintz should recognize a pre-tax gain on this exchange of

Quizplus · Accepted Answer

Since the exchange lacks commercial substance, Mintz should recognize a gain only to the extent of the cash received. The cash received is $30,000, and the gain is calculated as the proportion of cash received to the total fair value received: $30,000 / ($240,000 + $30,000) * $48,000 = $6,000.

Use the Following Information for Questions Two Independent Companies

Use the Following Information for Questions
Two Independent Companies