Question
When Craig began operations on June 1, 2026 he contributed his own truck to the business. It was recorded at its FMV (fair-market value) of
When Craig began operations on June 1, 2026 he contributed his own truck to the business. It was recorded at its FMV (fair-market value) of $13,495.
This truck was expected to last for 4 years and have a salvage value of $2,000.
Now that the business has been going strong for 7 months, Craig decided to trade-in this truck for a newer more efficient model. You have determined that this exchange has commercial substance because it will increase productivity, therefore creating more revenue for the business.
He went to Browns Truck & Auto on December 31, 2026. Craig chose a new truck with a value of $25,500 (including taxes and fees). He also had a trailer hitch installed for $750 and had his logo painted on the sides and back for additional $1,200. The company will capitalize the entire cost of the asset. He obtained a loan for this purchase in the amount of $12,000.
Record the following transactions in a journal entry:
- Record the depreciation expense for 2026. Round to the nearest dollar.
- Record the journal entry for the exchange of assets on December 31, 2026. Assume the exchange had commercial substance. Create a new account for the new truck.
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