Question

On December 31, Tradewinds Company decides to trade in one of its ships for another one that has a cost of $800,000. The seller of the ship is willing to allow a trade-in amount of $60,000. The initial cost of the old equipment was $600,000 with an accumulated depreciation of $550,000. Depreciation has been taken up to the end of the year. The difference will be paid in cash. What is the amount of the gain or loss on this transaction?

Answer 1

Answer:

gain of $10,000

Explanation:

The gain or loss that Tradewinds will have is the difference between the trade-in amount and the basis minus accumulated depreciation:

gain / loss = trade-in amount - (basis - accumulated depreciation) = $60,000 - ($600,000 - $550,000) = $60,000 - $50,000 = $10,000

since the result is a positive number, it is a gain