[12tang]

On January 2, E Company and W Company exchanged similar delivery trucks in an exchange that lacks commercial substance. Data relative to the trucks follow:

E’s truck

Original cost

$10,000

Accumulated depreciation as of January 2

8,000

Fair market value

3,000

W’s truck

Book value

$15,000

In the exchange, E paid W cash of $10,000. E Company should record the new truck at:

A) 13k

B) 12K

C) 10K

D) 8K

I answered 12k. I thought you don’t recognize gain when boot is paid. This problem is telling me that A is the correct answer. I have been trending over 90% for this section but this question seems wrong to me. Anyone?

BEC - PASS

FAR - PASS

AUD - PASS

REG - PASS

BOOM!  JUST LIKE THAT, I GOT MY LIFE BACK!  =D

Using Becker self-study
FAR: (82) 175 hours - 1st attempt
BEC: (XX)
AUD: (69) 45hrs of study - 1st attempt
REG: (XX)

[Anonymous]

I probably would have answered the same as you. Could the “lacks commercial substance” indicate that it is not counted as a LKE? For a LKE, I would have expected to be given the FMV of the like property received.

[JSPERBER]

I freaking hate these problems! The reason why the answer would be A is because $13,000 is the total fair value of consideration transferred ($3,000 FV of asset given up+ $10,000 cash paid)

[12tang]

I thought you don't recognize gain when boot is paid for transactions that lack commercial substance though! If you have the becker book, look at page 38. It specifically says: “Boot is paid = No gain” So how could the gain drive the value of this new acquired truck from W co?

Now if it had commercial substance then all gain/loss is recognized.

OR,

if it still lacked commercial substance, then in order to recognize the entire 1000 Gain, you'd have to RECEIVE boot of more than 25% of the total consideration given…

This was my entry for E company:

Dr. truck 12000

Cr. truck 2000

Cr. cash 10000

BEC - PASS

FAR - PASS

AUD - PASS

REG - PASS

BOOM!  JUST LIKE THAT, I GOT MY LIFE BACK!  =D

Using Becker self-study
FAR: (82) 175 hours - 1st attempt
BEC: (XX)
AUD: (69) 45hrs of study - 1st attempt
REG: (XX)

[JSPERBER]

I have no idea… i hate these problems you have no idea.

[JSPERBER]

I say just move on

[12tang]

I sent in the question. I really think it's an error. If it is an error, what am I paying these guys for?! And there better not be any similar errors on the real exam! (Not like we'd ever know though) 🙁

BEC - PASS

FAR - PASS

AUD - PASS

REG - PASS

BOOM!  JUST LIKE THAT, I GOT MY LIFE BACK!  =D

Using Becker self-study
FAR: (82) 175 hours - 1st attempt
BEC: (XX)
AUD: (69) 45hrs of study - 1st attempt
REG: (XX)

[JohnWayneIsGod]

I took the lower of FMV given up plus cash paid, and BV given up plus cash paid. 3000+10000>2000+10000.

Dr. Asset: 12k

Dr. A Depreciation: 8k

Cr. Cash 10k

Cr. Truck 10k

I think they just made an error by picking the highest instead of the lowest. If you understand the concept and are trending so high, I'd say move on.

FAR - 80

Courage is being scared to death, but saddling up anyway.

-John Wayne

[Author]

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