Question

Campbell Corp. exchanged delivery trucks with Highway, Inc. Campbell's truck originally cost $23,000, its accumulated depreciation was $20,000, and its fair value was $5,000. Highway's truck originally cost $23,500, its accumulated depreciation was $19,900, and its fair value was $5,700. Campbell also paid Highway $700 in cash as part of the transaction. The transaction lacks commercial substance. What amount is the new book value for the truck Campbell received?
A. $5,700
B. $5,000
C. $3,700
D. $3,000

Answer 1

Answer & Explanation:

The carrying value of the company is $3000 ($23000 - $20000) and the amount paid is $700 for the exchange of a truck worth $5700. The entry for such an exchange will be:

Dr Truck- Accumuated Depreciation $20000

Dr New Truck (Balancing amount)      $3700

Cr                                                   Asset  Cost             $23000

Cr                                                  Cash   Paid               $700

So the new value that must be recognized as asset value in the Statement of Financial Position for the year is $3700.

So the option C is correct.