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This year we sold a 2004 Cadillac for $16,500. Of this $8476

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This year we sold a...
This year we sold a 2004 Cadillac for $16,500. Of this $8476 went to pay off the loan and the balance was rolled over into the lease agreement for a 2008 Cadillac. My accountant gave me the following JE's but I'm not sure they are correct and I do't see any allocation for the $8024 which was taken off my current lease.   Please advise whether these entries are correct or how you would allocate the transaction. Thank you.
Submitted: 9 years ago.Category: Tax
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11/3/2008
Tax Professional: RD, Certified Public Accountant (CPA) replied 9 years ago
RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8,784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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Is the new Cadiallac that you are buying - bought under a capital lease? Meaning you own the vehicle at the end of the lease?

 

 

What is the cost of the old Cadillac on books and the accumulated depreciation and loan amount?

What is the cost of new Cadillac? Loan amount?

 

Entry does not look right. Why would the retained earnings be debited?

 

When you trade in an old car for a new one, the transaction is considered a like-kind exchange. Generally, no gain or loss is recognized

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Customer reply replied 9 years ago

 

No - it is a straight lease and at the end of the term they keep the car

 

We didn't really trade it in - we sold the old one and leased a new one-they put the 8000 on the new lease to lower the payments I believe

 

The asset account 1570 had a balance of 67258.70 at the beginning of the month,deprecitation was 12,305.99, loand on vehicle was 9027.25 and principal 1294.08

Tax Professional: RD, Certified Public Accountant (CPA) replied 9 years ago
Are you sure the accumulated depreciation account in the balance sheet on this vehicle is $12,305.99?
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Customer reply replied 9 years ago

 

yes, I am looking at my balance sheet and double checked with the account in the computer

Tax Professional: RD, Certified Public Accountant (CPA) replied 9 years ago

As per the entries - Loan on Auto is

 

Loan on Auto debit 9,027
Principle on Auto debit 1,294

But you mentioned that Loan was $8,476 which was paid off?

 

Which of the above amount is correct?

 

If $8,476 is the correct amount than the entry will be

 

Accum Deprec Auto debit 12412
Loan on Auto debit 9027
Principle on Auto debit 1294
Loss on Auto Sale debit Balancing figure

New Lease Cost debit 8,024

Transp Equip credit 67258

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Customer reply replied 9 years ago

 

So are you saying the expense loss on auto figure should be $36501?

Tax Professional: RD, Certified Public Accountant (CPA) replied 9 years ago

Yes, it sounds unreasonable but based on the numbers you provided from the Balance Sheet - this is what it would be presuming that you have reported 100% business use on this vehicle.

 

I do not understand why is the depreciation so low.

 

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

 

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