On January 1, 2018, Jacob Inc. purchased a commercial truck for $48,000 and uses the straight-line depreciation method. The truck has a useful life of eight years and an estimated residual value of $8,000. On December 31, 2019, the truck was exchanged for a new truck valued at $60,000. Jacob received a trade allowance of $35,000 on the exchange with the remaining $25,000 paid in cash. What amount of gain or loss should Jacob Inc. record on December 31, 2019?

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stokholm stokholm · Answer 1 · 2019-09-17T11:35:48+02:00

Answer:

Loss to be recorded on 31 December 2019 = $8,000

Explanation:

As for the provided information, we have,

Details for the old truck

Cost of truck = $48,000

Salvage value = $8,000

Expected life = 8 years

Depreciation as per straight line method = [tex]\frac{48,000 - 8,000}{8} = 5,000[/tex]

Therefore, value at year end = $48,000 - $5,000 = $43,000

Value of new truck as defined = $60,000

Cash paid for new truck = $25,000

Total cost as per records = $43,000 + $25,000 = $68,000

Value for acquisition = $60,000

Therefore, for the cost of $68,000 the asset is priced at $60,000

And accordingly, loss = $8,000