Case A. Kapono Farms exchanged an old tractor for a newer model. The old tractor had a book value of $20,000 (original cost of $44,000 less accumulated depreciation of $24,000) and a fair value of $10,600. Kapono paid $36,000 cash to complete the exchange. The exchange has commercial substance.

Case B. Kapono Farms exchanged 100 acres of farmland for similar land. The farmland given had a book value of $580,000 and a fair value of $860,000. Kapono paid $66,000 cash to complete the exchange. The exchange has commercial substance.

Question: Assume the same facts as Requirement 1 and that the exchange lacked commercial substance. What is the amount of gain or loss that Kapono would recognize on the exchange? What is the initial value of the new land?