[kaydun]

This is the question I’m struggling with:

On January 2nd, Elbert’s Delivery Company and Wanda’s Exporter’s exchanged their similar delivery trucks in an exchange that lacks commercial substance. Data relative to the trucks follows:

Elbert’s Truck:

Original Cost – 10,000

Accumulated depreciation as of Jan 2 – 8,000

FMV – 3,000

Wanda’s Truck:

BV – 15,000

In this exchange, Elbert paid Wanda cash of 10,000. Elbert’s Delivery Company should record the new truck at:

A) 13,000

B) 8,000

C) 12,000

D) 10,000

Becker says that the answer is 13,000, and they recognized a gain:

DR: New Truck 13,000

DR: A/D 8,000

CR: Cash 10,000

CR: Old Truck 10,000

CR: Gain 1,000

Why does Elbert recognize a gain? In the book, it says that if the boot is paid when a transaction lacks commercial substance, then NO gain is recognized. This is from Elbert’s perspective and he’s paying the boot, so why is there a gain still?

I might be completely missing something, because this question would otherwise be very easy.

FAR - 76 Oct 2015 (Becker)
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AUD - 82 Feb 2016 (Becker)
BEC - 85 May 2016 (Becker)