Answer: 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.
