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The distribution of the truck is reported as the sale at its fair market value.
Correspondingly - if the truck was fully depreciated - the basis would be zero and at amount will be attributed to the depreciation recapture and taxed as ordinary income.
In hands of the shareholder - that FMV would be the basis.
There is no loss because the truck is fully depreciated.From tax prospective - when the asset is sold at $4000 the gain is $4000 and it is fully attributed to depreciation recapture.So $4000 woudl be ordinary income.
Accounting entries example may be found here
Cash - debit 4000Accumulated depreciation - debit 11500Gain on asset disposal - credit 4000Assets - credit 11500
There will not be any difference because from tax prospective the distribution is treated as the sale and the FMV is used as the selling price.
So - we woudl need to determine the FMV for reporting purposes.
The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.
I would use cash account so - that would be a clear sale transaction on books and put some memo
after that credit cash account and debit capital account.But if you do not wan to use cash - you may debit "retained earning" or capital account depending how your books are set
and right after that record distribution.
The closing entry will be against the Shareholder Capital Account.
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