Response to the following problem:
Freeman Inc. purchased a piece of agricultural land several years ago for $125,000. The land has a fair value of $200,000 now. The company plans to exchange this land for equipment owned by a land developer that has a fair value of $240,000. The equipment was originally purchased for $325,000, and $80,000 of depreciation has been recorded to the date of the sale on April 30, 2016.
Required:
1. Assume each party values the acquired asset based on the fair value of the asset given up. Prepare the journal entry on the books of a. Freeman b. the developer.
2. Why would the developer give up an asset with a fair value of $240,000 in exchange for an asset with a fair value of only $200,000?