Assuming that the exchange has commercial substance, Horton would record land-new and a gain/(loss) of:

Question

Quizplus · Accepted Answer

Option B involves recording land-new and a loss of $10,000. This is because Horton is exchanging land with a fair market value of $110,000 and a book value of $120,000 for land with a fair market value of $100,000 and a cash payment of $20,000. The cash payment does not affect the accounting treatment since the exchange has commercial substance. The book value of Horton's land is higher than its fair market value, so the exchange results in a loss of $10,000.

Assuming That the Exchange Has Commercial Substance, Horton Would Record