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

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Zviko Zviko · Answer 1 · 2020-04-17T05:30:50+02:00

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)