Question

TTC acquired a significant number of assets. Included in these acquisitions was the purchase of four large trucks from Big Truck Trucking Co. (BTT), a long-haul transport company, for $250,000 cash. TTC recorded them at the exchange amount of $250,000, in the financial statements. Tyler owns 70% of BTT. The other 30% is owned by an unrelated party. The trucks had been used in BTT's long-haul trucking business and had a remaining net book value of $200,000 on BTT's balance sheet. Similar trucks sell in the market for $300,000.

Answer 1

The question pertains to the accounting treatment of trucks acquired by TTC from BTT, a related company, focusing on the recorded transaction amount, the net book value, and market value. Accounting principles and disclosures regarding related party transactions are critical considerations.

Step-by-step explanation:

The issue at hand deals with the accounting treatment of assets acquired by a company, TTC, and the complications that arise due to transactions with related parties, as TTC acquired trucks from BTT, a company predominantly owned by an individual who owns a majority stake in TTC. Furthermore, the acquisition price, the net book value, and the market value of the trucks are different, which is relevant for accounting purposes.

When TTC acquired the trucks for $250,000, this amount became the basis for recording the assets on TTC's balance sheet, which is the exchange amount. However, it is key to note that the trucks had a book value of $200,000 on BTT's books and a market value of $300,000.

If the transactions are between related parties, TTC might need to ensure that the acquisition price reflects the fair value of the trucks to comply with accounting principles or provide further disclosure about the relationship and valuation in the financial statements.