At the beginning of the year, it became obvious that the truck purchased the year before was

Question:

At the beginning of the year, it became obvious that the truck purchased the year before was too small to handle many of Laurel’s jobs. On January 4, 2020, Laurel traded in the old truck on a new, larger lightweight truck. Its sale price (and fair market value) was $120,000. The dealer gave Laurel a trade-in allowance of $60,000 for the old truck and Laurel paid the balance ($60,000) in cash.
1. For tax purposes, how much gain or loss is recognized on the trade-in?
2. For tax purposes, what is the basis (the cost) to be recorded for the new truck?

In Exercise

On January 20, 2019, Laurel Transportation Company purchased a new lightweight truck for $100,000.
1. Into which MACRS “class” is this asset classified?
2. What would be the amount of cost recovery on the truck in 2019 and in 2020?

Dealer
A dealer in the securities market is an individual or firm who stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price). A dealer seeks to profit from the spread between the...