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?

Question

Business

Eliezer Robertson

8 February, 10:04

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?

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Answers (1)

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Lauren Saunders · Answer 1

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