Question

Jane is a roofing contractor. Jane’s friend needed a new roof but did not have the cash to pay. Jane’s friend instead paid with a used truck that Jane could use in her roofing business. The truck had originally cost the friend $17,500 but it was gently used and only worth $6,000. Jane did not actually need the truck and ended up selling it to a used car dealer for $5,200 a few months later

What amount of gross income Jane must recognize as a result of the truck payment.

Why?
There ....................... exception in the law for noncash items received in exchange for services.

Answer 1

GIVEN:-

Jane is a roofing contractor. Jane’s friend needed a new roof but did not have the cash to pay. Jane’s friend instead paid with a used truck that Jane could use in her roofing business. The truck had originally cost the friend $17,500 but it was gently used and only worth $6,000. Jane did not actually need the truck and ended up selling it to a used car dealer for $5,200 a few months later

OBSERVATION:-

In the given case, jane has received non cash item in exchange for services provided. Since Jane did not actually need the truck, so the amount to be recognized as income as a result of truck payment would be the REALISABLE VALUE OF THE TRUCK WHEN IT WAS BEING RECEIVED BY JANE I.E. $6,000.00

The fact that he sold that truck @ $5,200.00 after few months is irrelevant and the $800 would then be treated as an expense (Loss) in Jane's books of Account,