The exchange lacked commercial substance

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Two independent companies, Hager Co. and Shaw Co., are in the home building business. Each owns a tract of land held for development, but each would prefer to build on the other's land. They agree to exchange their land. An appraiser was hired, and from her report and the companies' records, the following information was obtained:

Hager's Land Shaw's Land
Cost and book value $384,000 $240,000
Fair value based upon appraisal 480,000 420,000

The exchange was made, and based on the difference in appraised fair values, Shaw paid $60,000 to Hager. The exchange lacked commercial substance.

For financial reporting purposes, Hager should recognize a pre-tax gain on this exchange of

Reference no: EM13668986

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