The Opening Balance in the Land Account for Adara Corp

question 38

Essay

The opening balance in the land account for Adara Corp for fiscal 2020 was $500,000; the closing balance was $610,000. During the year land costing $130,000 was given to a creditor in full settlement of a $152,000 loan. The fair value of the land at the time of the exchange was $152,000. The company also purchased a separate parcel of land for cash during the year.
Required:
a. Prepare the underlying journal entries to record the foregoing transactions and record events stemming from the transactions (e.g., the gain or loss on exchange of land for loan, etc.).
b. For each entry identify the cash flow effects, if any, under both the direct and indirect methods of presentation and classify the cash flow according to its nature.
c. Why does the IASB require that companies classify cash flows as arising from operations, investing, or financing activities?

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Definitions:

Federal Law

Federal Law consists of the body of law created by the federal government of a country, governing relationships, powers, and structure of its entities and individuals.

Restatement Test

A legal principle used to clarify the law by restating existing statutes or case law in a simplified manner.

Liability for Negligence

The legal responsibility that arises when someone fails to exercise a reasonable standard of care, resulting in harm or damage.

Substantial Performance

Substantial performance is a legal principle indicating that if a party has performed enough of its contract obligations, it can demand payment or compensation, minus deductions for unfinished or incorrect work.