Morgan Trucking traded a used truck with a book value of $1,700 and a fair market value of $2,300 for a new truck with a list price of $17,800.Morgan agreed to pay $13,000 in cash for the exchange in addition to giving up the used truck.Assuming the exchange has commercial substance,at what amount should the new truck be recorded?
A) $17,800
B) $15,300
C) $14,700
D) None of these

Question

Quizplus · Accepted Answer

The fair market value of the used truck is $2,300 but it has a book value of $1,700, meaning Morgan Trucking made a gain of $600 on the exchange. To determine the amount the new truck should be recorded at, we need to subtract the gain on the exchange ($600) and the cash paid ($13,000) from the list price of the new truck ($17,800):
$17,800 - $13,000 - $600 = $4,200
Therefore, the new truck should be recorded at $15,300 ($4,200 + $11,100, the fair value of the used truck).

Morgan Trucking Traded a Used Truck with a Book Value