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?

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5 June, 07:42

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?

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Keenan Shepherd · Answer 1

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