Question

A fixed asset with a cost of 42,000 and accumulated depreciation of 38,500 is traded for a similar asset priced at 60,000. Assuming the trade has no commercial substance and there is a trade in allowance of 5,000 the cost basis of the new asset is?

A.) $58,000
B.) $58,500
C.) $60,000
D.) $61,500

Answer 1

The cost basis of the new asset is $16,500.

Step-by-step explanation:

To determine the cost basis of the new asset, we need to consider the trade in allowance and the accumulated depreciation.

The cost of the new asset is $60,000, and there is a trade in allowance of $5,000. This means that the net cost of the new asset is $60,000 - $5,000 = $55,000.

However, we also need to subtract the accumulated depreciation of the old asset from the net cost. The accumulated depreciation is $38,500.

Therefore, the cost basis of the new asset is $55,000 - $38,500 = $16,500.