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1 June, 03:31

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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  1. 1 June, 04:00
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    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)
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