New World Deli exchanged land for a more suitable parcel of land to be used for a new restaurant. New World Deli reported the old land at its original cost of $85,000. According to an independent appraisal, the old land currently is worth $110,000. New World Deli paid $15,000 in cash to complete the transaction. Required:Record the exchange.

Please refer to Explanation

Explanation:

New World Dell exchanged old land for new land.

In the exchange, the old land was considered to be worth $110,000 according to an independent appraisal and yet New World Dell still had to pay an additional $15,000 to get it. This means that the new land is valued at,

= 110,000 + 15,000

= $125,000

The old land was however recorded at cost for New Dell so the properly recording would be,

DR Land, New $125,000

CR Land, Old $85,000

CR Cash $15,000

CR Gain on Exchange $25,000

(To record Exchange of land)

There is a gain because the old land was valued at $25,000 more than New World Dell had valued it for themselves.

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