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Hunter Sailing Company exchanged an old sailboat for a new one. The old sailboat had a...

Hunter Sailing Company exchanged an old sailboat for a new one. The old sailboat had a cost of $300,000 and accumulated depreciation of $150,000. The new sailboat had an invoice price of $326,000. Hunter received a trade in allowance of $166,000 on the old sailboat, which meant the company paid $160,000 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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Answer #1

Book value of the old boat = $300,000 - $150,000 = $150,000

Boat valuing $150,000 is traded for $166,000. ie. The old boat is traded for more than its book value.

Gain = $166,000 - $150,000 = $16,000

$16,000 gain

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