Assume that a governmental entity acquires a new garbage truck. The garbage truck normally costs $189,000. The vendor allowed a $30,000 allowance with the trade-in of the entity's old garbage truck, which had a net book value of $42,000. The government financed the balance with a short-term bank note. The new garbage truck would be recorded in the General Capital Assets account at

Question

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The new garbage truck should be recorded at its historical cost of $189,000. The trade-in allowance and the net book value of the old truck affect the financing but do not change the cost of the new asset.

Assume That a Governmental Entity Acquires a New Garbage Truck