On January 20, 20X1, Laurel Transportation Company purchased a new lightweight truck for $46,000. (Use MACRS Table) 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 2, 20X2, Laurel traded in the old truck on a new, larger lightweight truck. Its sale price (and fair market value) was $56,000. The dealer gave Laurel a trade-in allowance of $7,000 for the old truck and Laurel paid the balance of $49,000 in cash. Required: 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?
On January 20, 20X1, Laurel Transportation Company purchased a new lightweight truck for $46,000. (Use MACRS Table) 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 2, 20X2, Laurel traded in the old truck on a new, larger lightweight truck. Its sale price (and fair market value) was $56,000. The dealer gave Laurel a trade-in allowance of $7,000 for the old truck and Laurel paid the balance of $49,000 in cash. Required: 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 20, 20X1, Laurel Transportation Company purchased a new lightweight truck for $46,000. (Use MACRS Table)
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 2, 20X2, Laurel traded in the old truck on a new, larger lightweight truck. Its sale price (and fair market value) was
$56,000. The dealer gave Laurel a trade-in allowance of $7,000 for the old truck and Laurel paid the balance of $49,000 in cash.
Required:
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?
Complete this question by entering your answers in the tabs below.
Required 1
Required 2
For tax purposes, what is the basis (the cost) to be recorded for the new truck?
The cost of the asset for tax purposes is therefore deemed to be:
Cost of truck purchased on January 20, 20X1
$ 46,000
Accum. Depreciation of Truck at beginning of year 2
Remaining costs, January 2, 20X2
$ 46,000
Cash paid as boot on trade-in
Cost of new truck for tax purposes
< Required 1
Requlred 2>
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