Endor Fishing Company exchanged an old boat for a new one.The old boat had a cost of $260,000 and accumulated depreciation of $200,000.The new boat had an invoice price of $400,000.Endor received a trade in allowance of $100,000 on the old boat,which meant they paid $300,000 in addition to the old boat to acquire the new boat.What amount of gain or loss should be recorded on this exchange? (The exchange lacks commercial substance.)

Question

Quizplus · Accepted Answer

Since the exchange lacks commercial substance, no gain or loss is recognized. The book value of the old boat is $60,000 ($260,000 cost - $200,000 accumulated depreciation), and the trade-in allowance is $100,000, but the lack of commercial substance means the gain is deferred.

Endor Fishing Company Exchanged an Old Boat for a New