Question

Kelly company exchanged inventory items that cost $47,000 and normally sold for $75,000 for a new truck with a list price of $77,000 the delivery should be recorded on Kelly's books at

$47,000
$75,000
$79,000
$77,000

Answer 1

Option B is the answer

The delivery should be recorded in Kelly books at the normal sales rate. That is 75,000 Option B is the answer

Answer 2

The exchange of inventory items for a new truck is a non-monetary transaction, which means that there is no cash involved. To record this transaction, Kelly company needs to determine the fair value of the inventory items exchanged and compare it to the fair value of the truck received.

In this case, the cost of the inventory items is not relevant for the accounting treatment, as the company should use the fair value. The fair value of the inventory items is given as $75,000, which is also the normal selling price.

The list price of the new truck is $77,000, but this is not necessarily the fair value. Kelly company should obtain evidence of the fair value of the truck, such as an independent appraisal or market research, to determine the appropriate value to record.

Assuming that the fair value of the truck is determined to be $77,000, the journal entry to record this transaction would be:

Truck $77,000 Inventory items $75,000 Gain on exchange $2,000

The truck is recorded at its fair value of $77,000, and the inventory items are also recorded at their fair value of $75,000. The gain on the exchange of $2,000 is recorded as a component of income.

Note that if the fair value of the truck is determined to be less than $77,000, Kelly company would record a loss on the exchange instead of a gain. Conversely, if the fair value of the truck is determined to be more than $77,000, Kelly company would record a larger gain on the exchange.