Journal Entry for purhcase of new vehicle with a trade in and loan.

david088 · ‎October 31, 2023

Hello,

would gladly appreciate any help with a Journal entry for purchase of new Vehicle.

Old vehicle Price: 104,199.28

Fully depreciated at time of trade in

trade in allowance: 51,000

Old loan balance: 59,374.07

New Vehicle Price:49,193.85

New Loan: 49,[removed].07(old loan) = 57,567.92

Thanks!

Rainflurry · ‎November 01, 2023

@david088

That makes more sense. Here is the journal entry:

	Debit	Credit
New Vehicle	49,193.85
Loan Payable (old loan)	59,374.07
Accumulated Depreciation	104,199.88
Old Vehicle		104,199.88
Loan payable (new loan)		57,567.92
Gain on Sale of Asset		51,000.00

View solution in original post

Rainflurry · ‎October 31, 2023

@david088

Your post is a bit confusing because there are two values for the old loan ($59,374.07 & $57,567.92) and a portion of the new loan was removed from your post for some reason ($49,XXX.07).

Also, if you received $51K on the trade and they paid off your loan of $59K or $57K, you should owe them $6K or $8K. That should have been rolled into the new loan or, if not, made up the difference in cash. It doesn't appear that either of those happened.

Here is the journal entry with the info provided. I used the old loan value of $57,567.92. You can adjust that up and decrease the gain if the loan payoff was $59,374.07. You will need to add the proper amount for the new loan since that was incomplete in your post. Again, offset the difference to gain. Debits and credits need to be equal.

	Debit	Credit
New Vehicle (fixed asset)	49,193.85
Loan Payable (old loan - to close)	57,567.92
Accumulated Depreciation	104,199.88
Old Vehicle (fixed asset - to close)		104,199.88
Loan Payable (new loan)		49,000.07
Gain on Sale of Asset (other income)		57,761.70

Rainflurry · ‎November 01, 2023

@david088

EDIT: If you increase the old loan payoff amount, you will need to increase the gain, not decrease it as I previously stated.

david088 · ‎November 01, 2023

Thank you! I don't know why it was removed.

new loan is 57,567.92.

Old loan is 59,374.07

the blurred-out part was the new loan plus the remainder to pay of the old loan which was included in the new one per the contract.

Rainflurry · ‎November 01, 2023

@david088

That makes more sense. Here is the journal entry:

	Debit	Credit
New Vehicle	49,193.85
Loan Payable (old loan)	59,374.07
Accumulated Depreciation	104,199.88
Old Vehicle		104,199.88
Loan payable (new loan)		57,567.92
Gain on Sale of Asset		51,000.00

david088 · ‎November 01, 2023

Thank you once again for your time and help!

FritzF · ‎November 06, 2023

Hi, Rainflurry.

I appreciate you for always sharing your knowledge about QuickBooks. This will definitely help other users as well in the future. Please keep on posting here in the Community.

Stay safe and have a great rest of the day.

Breelee205 · ‎February 12, 2024

What about a purchase without a loan (cash) with a trade in. New 2023 vehicle purchase $76,580.70 HST $11,485.13, trade in allowance $13,800.00. The original purchase price for the trade in 2016 vehicle is $43,925.50 + HST $6588.83. What would be the journal entry?

AL1155

RainFlurry,

Why is the gain not $108,568? If the value of the new car received is $49,194 and assuming the dealership also paid off the $59,374 note then the value received or "Proceeds" for the sale of the old vehicle would be $49,194 + $59,374 = $108,568. If the car was fully depreciated it had no basis remaining and all would be gain. In this instance I could only imagine that the dealership would require some cash down but that piece was not identified.

I understand if the dealership was not the one to pay off the 3rd party loan, then the gain would be the value received of $51,000.

Rainflurry

@AL1155

What does the value of the new vehicle have to do with the gain? The value of the new vehicle is unrelated to the gain on the trade-in unless the dealer gave them the new car for free. The new vehicle was financed 100% so there's no gain there - no different than if the seller bought the new vehicle on Monday and then traded in the old vehicle on Tuesday. The seller's trade of $51K was used to pay off the loan and the remaining balance ($51K didn't quite cover the balance) was rolled into the new loan. If an asset's basis is $0 and is sold for $51K, the gain is $51K. Maybe it's easier to visualize with two journal entries - the purchase on Monday and the trade on Tuesday. It just happens both transactions occurred at the same time. These two journal entries would create the same cumulative entry as the solution post. Thoughts?

Purchase of new vehicle on Monday:

	Debit	Credit
New Vehicle	49,193.85
Loan Payable (new loan)		49,193.85

Trade-in of old vehicle on Tuesday:

	Debit	Credit
Loan Payable (old loan)	59,374.07
Accumulated Depreciation	104,199.88
Old Vehicle		104,199.88
Loan Payable (new loan) rollover amount (loan payoff less new vehicle trade)		8,374.07
Gain on sale of asset		51,000

AL1155

According to IRC Sec1001....

"

1001(a)Computation of Gain or Loss

The gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in section 1011 for determining gain, and the loss shall be the excess of the adjusted basis provided in such section for determining loss over the amount realized.

1001(b)Amount Realized

The amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received. In determining the amount realized—

1001(b)(1)

There shall not be taken into account any amount received as reimbursement for real property taxes which are treated under section 164(d) as imposed on the purchaser, and

1001(b)(2)

There shall be taken into account amounts representing real property taxes which are treated under section 164(d) as imposed on the taxpayer if such taxes are to be paid by the purchaser.

1001(c)Recognition of Gain or Loss

Except as otherwise provided in this subtitle, the entire amount of the gain or loss, determined under this section, on the sale or exchange of property shall be recognized."

The calculation of the gain is similar to what it was under TCJA; however, now the gain is recognized rather than deferred. I don't see how the FMV of the property received doesn't matter.....but I may be overthinking this. Value received vs value given up. From CPE I've taken, the amount realized & recognized is the sum of "FMV of property received, cash received, debt relief MINUS cash paid by seller" over the adjusted basis.

I did adjust the "net payoff" since the dealer didn't require any cash down but the old note was greater than the new note. Here is my last calculation and I ran this through a like-kind exchange calculation to compare what the realized gain was and it agreed. I feel good about this but please let me see where I'm wrong.

AL1155

1. Was there any previous depreciation taken on the vehicle given up? What was its adjusted basis?

2. What was the amount of cash paid out by the buyer for the new vehicle? I must assume it was $88,065.83-$13,800 = $74,265.83.

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Journal Entry for purhcase of new vehicle with a trade in and loan.