The Tinsley Company Land Exchange Transaction Analysis

The Tinsley Company Land Exchange Transaction Details

The Tinsley Company exchanged land that it had been holding for future plant expansion for a more suitable parcel located farther from residential areas. Tinsley carried the land at its original cost of $62,500. According to an independent appraisal, the land currently is worth $150,000. Tinsley paid $23,000 in cash to complete the transaction.

Required Analysis

1. Fair Value of the new land:

Fair Value of the new land = Fair Value of old land + Cash given

= $150,000 + $23,000

= $173,000

2. Journal Entry for the Transaction (assuming the exchange has commercial substance):

Dr Land - new $173,000

($150,000 + $23,000)

Cr Cash $23,000

Cr Land - old (book value) $62,500

Cr Gain $88,000

($150,000 - $62,500)

3. Journal Entry for the Transaction (assuming the exchange lacks commercial substance):

Dr Land - new $44,000

($62,500 + $23,000)

Cr Cash $23,000

Cr Land - old (book value) $62,500

Understanding Journal Entry

What is a Journal Entry?

Journal entry is a process which is done in order to document a business transaction in the accounting records of the company. A journal entry is often made in the general ledger, but it can also be made in a subsidiary ledger and subsequently rolled forward into the general ledger after being summarized. After then, the general ledger is utilized to produce the company's financial statements.