USA Company Truck Purchase

[Jason Taylor]

We are currently moving a shareholder truck into the company, however the truck will stay in the shareholder's name and the company is merely making the payments to the bank. Please help me to understand how this will be reflected on the company's books.

Would it become and asset? Even though the title is still in the name of the shareholder.
Would we set up a loan payable?

Thank you for any assistance.

 

[Simon W]

Jason,

Wouldn't this just be under auto expense? You're pretty much just paying for the use of the car.

 

[Drmdcpa]

This is quite common in small businesses since the shareholders have credit and the business does not.

If there is debt attached to an asset you cannot change title without the lender's approval.

You would need to book the asset at some value, generally fair market value. Book the loan as well. Any net difference is shareholder contributions.

 

[Jason Taylor]

If the FMV and the loan balance is the same then just debit the fixed asset account and credit the loan payable amount the same. Correct?

So even though title is in shareholder name, the company can book it as a fixed asset and take depreciation on it?

 

[Drmdcpa]

Correct and correct.

The company may not be able to borrow; whereas the shareholder can. Thus the purchase is made using the shareholder's credit. Title has to follow the ultimate borrower. This is standard operating procedure for small businesses.

You will need to make sure it has the proper insurance on it. If FMV equals loan value, then yes book asset and liability, nothing more.