Fair Value Calculation in Land Exchange Transactions

What is the fair value of the new parcel of land received by Tinsley assuming the exchange has commercial substance?

1. $136,000

Final answer:

In transactions with commercial substance like this one, the fair value of the new parcel of land received by Tinsley, which is the sum of the fair value of the land given up and the cash paid to complete the transaction, is $136,000.

Explanation:

In transactions with commercial substance, the fair value of the asset received should be used to record the transaction if it is more clearly evident than the fair value of the asset given up. In this case, the Tinsley company gave up land worth $120,000 (its fair value, despite acquisition cost being $50,000), and also paid an additional $16,000 in cash to complete the transaction. Therefore, the fair value of the new parcel of land received by Tinsley is $120,000 (land given up) + $16,000 (cash paid) = $136,000.