On January 2, Elbert's Delivery Company and Wanda's Exporters exchanged similar delivery trucks in an exchange that lacks commercial substance. Data relative to the trucks follow:
Original cost: $10,000
Accumulated depreciation as of January 2: 8,000
Fair market value 3,000
Book value $15,000
In the exchange, Elbert paid Wanda cash of $10,000. Elbert's Delivery Company should record the new truck at:
BECKER ANSWER: Choice "a" is correct. The new truck is recorded at $13,000 on Elbert's books. In this case, the transaction is considered to be a monetary exchange, because the boot ($10,000) exceeds 25% of the total consideration ($10,000 plus $3,000 fair value of the old truck transferred to Wanda). Therefore, both parties to the exchange recognize all gains and losses on the transaction.
I thought the correct answer was c. 12,000 since this is lacking substance and Elbert PAID the boot, not received it.. Because the question specifies what would be on Elbert's books and not Wanda's, I thought the "Boot is 25% or more of total consideration" rule applied to only BOOT RECEIVED by ELBERT, not boot paid?
I found this SAME becker question from 2006, and the answer said c) 12,000.. because boot was paid, you would NOT recognize the 1,000 gain so the new asset's basis is equal to the $2,000 basis of the old asset plus the $10,000 cash paid.