Ralley Company exchanged a piece of equipment with a fair market value of $20, 000 and a book value of $25, 000 for a truck with a fair market value of $16, 000 and boot of $4, 000.Ralley Company should record the truck at a cost of

Question

Quizplus · Accepted Answer

The cost of the truck should be recorded at its fair market value, which is $16,000. Since the book value of the equipment was higher than its fair market value, a loss should be recognized. The recognized loss is the difference between the equipment's book value ($25,000) and its fair market value ($20,000), which is $5,000. Therefore, the correct option is to record the truck at a cost of $16,000 and recognize a loss of $5,000.

Ralley Company Exchanged a Piece of Equipment with a Fair