O'Briens Construction Ltd exchanged equipment that had a book value of $40 000 for a truck that had a book value (in the other entity's books)of $38 000.The fair value of the equipment is $45 000 and the fair value of the truck is $48 000.Further cost incurred to prepare the truck for use by O'Briens was $700 for signage.What is the acquisition cost of the truck?
A) $48 700
B) $40 000
C) $48 000
D) $45 700
E) None of the given answers.

Question

Quizplus · Accepted Answer

The acquisition cost of the truck is the fair value of the truck plus any additional costs incurred to prepare it for use. Therefore, the acquisition cost of the truck is $48,000 + $700 = $48,700. However, since the company exchanged equipment with a book value of $40,000 for the truck, the cost of the acquisition is reduced by $40,000, resulting in a final acquisition cost of $48,700 - $40,000 = $8,700. Therefore, the correct answer is D) $45,700, which is the fair value of the truck plus the additional costs incurred.

O'Briens Construction Ltd Exchanged Equipment That Had a Book Value