Hunter Sailing Company exchanged an old sailboat for a new one.The old sailboat had a cost of $160,000 and accumulated depreciation of $100,000.The new sailboat had an invoice price of $270,000.Hunter received a trade in allowance of $70,000 on the old sailboat,which meant the company paid $200,000 in addition to the old sailboat to acquire the new sailboat.If this transaction lacks commercial substance,what amount of gain or loss should be recorded on this exchange?
A)$0 gain or loss.
B)$10,000 gain.
C)$10,000 loss.
D)$60,000 loss.
E)$70,000 loss.

Question

Quizplus · Accepted Answer

When a transaction lacks commercial substance, no gain or loss is recognized. The book value of the old sailboat is $60,000 ($160,000 cost - $100,000 accumulated depreciation), and the trade-in allowance is $70,000, but since the transaction lacks commercial substance, no gain is recorded.

Hunter Sailing Company Exchanged an Old Sailboat for a New