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20 May, 09:52

Hunter Sailing Company exchanged an old sailboat for a new one. The old sailboat had a cost of $210,000 and accumulated depreciation of $84,000. The new sailboat had an invoice price of $239,000. Hunter received a trade in allowance of $138,000 on the old sailboat, which meant the company paid $101,000 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. 20 May, 10:05
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    Answer: Gain of $12,000

    Explanation:

    First off, what was the Net book value of the old sailboat?

    = Cost Price - Accumulated Depreciation

    = 210,000 - 84,000

    = $126,000

    They paid $101,000 in cash and received a trade in allowance of $138,000 bringing the value to $239,000.

    What they should have received as the trade in allowance was the NBV of $126,000. Since they didn't they got a gain of,

    = 138,000 - 126,000

    = $12,000

    Because this transaction has commercial substance, the gain would be $12,000.
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