Can somebody please help me on this question- It's driving me crazy and I'm desperate to get it figured out.
On January 2, Elbert's Delivery Company and Wanda's Exporters exchanged similar delivery trucks in an exchange that lacks commercial substance. Data relative to the trucks follow:
Elbert's truck
Original cost
$10,000
Accumulated depreciation as of January 2
8,000
Fair market value
3,000
Wanda's truck
Book value
$15,000
In the exchange, Elbert paid Wanda cash of $10,000. Elbert's Delivery Company should record the new truck at:
My answer is:
Dr: New Asset: 12,000
Dr: A/D: 8000
Cr: Old Asset: 10,000
Cr: Cash Paid: 10,000
however, that isn't correct…Becker is saying there's a gain which makes NO sense to me since boot is paid and the exchange lacks commercial substance.
The new truck is recorded at $13,000 on Elbert's books. In this case, the transaction is considered to be a monetary exchange, because the boot ($10,000) exceeds 25% of the total consideration ($10,000 plus $3,000 fair value of the old truck transferred to Wanda). Therefore, both parties to the exchange recognize all gains and losses on the transaction. The journal entry prepared by Elbert follows:
Dr: Truck-New $ 13,000
Dr: Accum. Depre. 8,000
Cr: Cash $ 10,000
Cr: Truck-Old 10,000
Cr: Gain 1,000
.