John’s uncle donated a truck to his company, John’s Corporation. The truck had a
ID: 2593913 • Letter: J
Question
John’s uncle donated a truck to his company, John’s Corporation. The truck had an original cost of $95,000, a book value of $40,000, and a fair value of $60,000. The journal entry by John’s Corporation to record this donated asset will include a
Question 9 options:
debit Truck for $60,000 and credit Gain for $20,000.
debit Truck for $60,000 and credit Gain for $60,000.
debit Truck for $95,000 and credit Gain for $35,000.
debit Truck for $95,000 and credit Gain for $95,000.
debit Truck for $60,000 and credit Gain for $20,000.
debit Truck for $60,000 and credit Gain for $60,000.
debit Truck for $95,000 and credit Gain for $35,000.
debit Truck for $95,000 and credit Gain for $95,000.
Explanation / Answer
Inbound fixed asset donations take place when a fixed asset is donated to a company (e.g., a non-for-profit). The company should record the received asset at its fair market value, which can be determined through an appraisal, the market rate on similar assets, or the net present value of the expected future cash flows generated by the asset.
The company can record the donated asset by:
Similarly, an outbound fixed asset donation is when a company donates a fixed asset. In this case, the company recognizes the fair value of the donated asset, net of its book value. The company recognizes an expense for the fair value of the donated asset (e.g., Dr. Charitable Donations; Dr. Contribution Expense). If the fair value does not equal the asset net book value, the company will recognize either a gain or loss. If the fair value is above the net book value, the company will record a gain; on the other hand, if the fair value is below the net book value, the firm will recognize a loss on the fixed asset donation
debit Truck for $60,000 and credit Gain for $60,000.
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