Question

Beerbo Inc. traded a used truck for a new truck. Before this exchange of non-monetary assets (ENMA), Beerbo's balance sheet show the used truck at a cost of $30,000 with an accumulated depreciation balance of $27,000. The fair value of the new truck is $37,000. Beerbo also paid $36,000 in the transaction.

Assume the ENMA lacks commercial substance.

How much must Beerbo record as the cost of the truck received?

How much gain (loss) must Beerbo record from this transaction? Input gains as positive numbers, losses as negative numbers (gains = 123; losses = -123)

Answer 1

The cost of the new truck recived by beerbo Inc was the fair value of the truck that was purchased

Cost of the truck received = $37,000

loss to be recorded on the transaction is as follows

(Cost of the truck as per balance sheet - Accumulated depreciation) - (Fair value of new truck - Cash payment)

= (30,000-27,000) - (37,000-36000)

= 3,000 - 1,000

= 2,000

Loss from the transaction is -$2,000

journal entry on recording the following transaction is

Particulars. Debit. Credit

Accumulated depreciation. 27,000

New truck. 37,000

loss on Exchange. 2,000

Old truck. 30,000

Cash/ Bank. 36,000