Question 1

Bolt Corp. exchanges a delivery truck for a new machine. The exchange has commercial substance.
- Truck Cost: $50,000
- Accumulated Depreciation: $30,000
- Fair Value of Truck: $25,000
- Cash Paid by Bolt: $10,000

What is the initial recorded cost of the new machine?

Accepted Answer

Commercial Substance = Fair Value Approach.
New Asset Cost = FV of Old Asset + Cash Paid.
(Also recognize Gain/Loss on Old Asset: FV $25k - BV $20k = $5k Gain).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using the book value of the old asset (that's for exchanges lacking commercial substance without boot).

Bolt Corp. exchanges a delivery truck for a new machine. The exchange has commercial substance.<br/>- Truck Cost: $50,000<br/>- Accumulated Depreciation: $30,000<br/>- Fair Value of Truck: $25,000<br/>- Cash Paid by Bolt: $10,000<br/><br/>What is the initial recorded cost of the new machine?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 3

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