How much is gain on exchange recognized by labyrinth co

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Reference no: EM132817636

Fact pattern On January 1, 20x1, LABYRINTH MAZE Co. acquired land with fair value of ?3,800,00 by issuing a 3-year, 10%, ?4,000,000 bonds. Principal is due on January 1, 20x4 but interest is due at each year-end. The prevailing market rate of interest for a similar instrument on January 1, 20x1 is 12%. The present value of the future cash flows from the bonds discounted at 12% is ?3,807,852.

Problem 1: How much is the initial cost of the equipment received by LABYRINTH Co.?

a. 3,800,000

b. 4,000,000

c. 3,807,852

d. 180,000

Problem 2: How much is gain (loss) on exchange recognized by LABYRINTH Co.?

a. 192,148

b. (192,148)

c. (200,000)

d. 0

Problem 3: Use the fact pattern above except that the fair value of the land is indeterminable. How much is the initial cost of the equipment received by LABYRINTH Co.?

a. 3,800,000

b. 4,000,000

c. 3,807,852

d. 180,000

Problem 4: How much is gain (loss) on exchange recognized by LABYRINTH Co.?

a. 192,148

b. (192,148)

c. (200,000)

d. 0

Reference no: EM132817636

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