Question

On January 1, Feld traded a delivery truck and paid $10,000 cash for a tow truck owned by Baker. The delivery truck had an original cost of $140,000, accumulated depreciation of $80,000, and an estimated fair value of $90,000. Feld estimated the fair value of Baker's tow truck to be $100,000. The transaction had commercial substance. What amount of gain should be recognized by Feld?

Answer 1

Answer:

gain on disposal                     30,000

Explanation:

First we do the numbers for the old truck:

Asset        140,000

Acc Dep          80,000

Book Value  60,000

Now, becuase there are commercial subtance we will recognize the dgain or loss at disposal.

Total given-up for the tow truck

bake tow truck                      100,000

cash                                       (10,000)  

Baker valuation of our truck  90,000

book value                             (60,000)

gain on disposal                     30,000

journal entry

tow truck                      100,000

acc dep delivery truck   80,000

    cash                                                   10,000

   delivery truck                                   140,000

   gain on disposal                                30,000