On January 2, 2012, Rapid Delivery Company traded in an old delivery truck for a

Question

On January 2, 2012, Rapid Delivery Company traded in an old delivery truck for a newer model. The exchange lacked commercial substance. Data relative to the old and new trucks follow:
Old Truck
Original cost $36,000
Accumulated depreciation as of January 2, 2012 24,000
Average published retail value 11,000
New Truck
List price $60,000
Cash price without trade-in 54,000
Cash paid with trade-in 45,000
What should be the cost of the new truck for financial accounting purposes?


$45,000.

$54,000.

$57,000.

$60,000.

Explanation / Answer

The answer is $57,000.
For accounting purposes, the company is removing $45,000 in cash and also the asset traded (the old truck) from its books.
The book value of the old truck is $12,000 (36,000(actual cost)-24000(accumulated depreciation)).
Hence the new truck is recorded as the amount of cash + the book value of the asset traded = 45000+12000 = $ 57,000

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