# Exchange of assets Q

Co A exchanged its old delivery truck for a new truck with a list price of \$23,000. The old truck was purchased for \$17,000 and had a remaining book value of \$6,000. On the date of the exchange, the old truck had a market value of \$7,000. In addition to the old truck, Co A paid \$15,000 cash for the new truck. The amount Co A would record as the cost of the new truck for financial accounting purposes is closest to a 15,000 b 21,000 c 22,000 d 23,000

Seems like it has to be c but those accountants are crafty devils…

yeah, common sense said C but common sense was wrong…

I’m not sure but was thinking B. 15K + 6k(BOOK VALUE)

Co A exchanged its old delivery truck for a new truck with a list price of \$23,000. The old truck was purchased for \$17,000 and had a remaining book value of \$6,000. On the date of the exchange, the old truck had a market value of \$7,000. In addition to the old truck, Co A paid \$15,000 cash for the new truck. The amount Co A would record as the cost of the new truck for financial accounting purposes is closest to a 15,000 b 21,000 c 22,000 d 23,000 List Price = 23000 Remaining Book Value = 6000 Market Value=7000 Actually Sold for 23000 - 15000 = 8000 So Gain on Sale of old truck = 2000 So Actual record: 23000 - 2000 = 21000 Is it B?

B it is. Two different methods give the same answer. I like that.

I think another way to think about this is that when you exchange a good for a like good, you defer the recognition of gain or loss on the old good. There was a potential gain of \$1,000 in the old truck that is deferred by subtracting \$1,000 from the recorded cost of the new truck. And the amount from which to subtract the \$1,000 is \$22,000, since that’s the market value of the goods that were exchanged for the truck (\$15,000 + \$7,000). Thus the recorded cost of the new truck should be \$21,000. If the firm turns around and sells the truck tomorrow at the prevailing market price (\$23,000), it would record a gain of \$2,000. Half of that would be the deferred gain from the old truck. The other half would be from managing to buy the \$23,000 truck for cash and goods that had a market value of only \$22,000.