Question

Hunter Sailing Company exchanged an old sailboat for a new one. The old sailboat had a cost of $300,000 and accumulated depreciation of $120,000. The new sailboat had an invoice price of $326,000. Hunter received a trade in allowance of $192,000 on the old sailboat, which meant the company paid $134,000 in addition to the old sailboat to acquire the new sailboat. If this transaction has commercial substance, what amount of gain or loss should be recorded on this exchange

Answer 1

Answer:

a gain of $12,000 should be recorded on this exchange.

Explanation:

Hint : Treat the Old Sailboat as if it was Sold for an Amount equal to the trade-in allowance since the transaction has commercial substance

Journal Entry to record the Exchange of the Old Sailboat

Trade - In Allowance $192,000 (debit)

Accumulated depreciation  $120,000 (debit)

Sailboat - Cost $300,000 (credit)

Gain on Exchange of Old Sailboat $12,000 (credit)