Wayne Co has a machine that costs $650,000 on October 31, 2011. This old machine
ID: 2465822 • Letter: W
Question
Wayne Co has a machine that costs $650,000 on October 31, 2011. This old machine had an estimated useful life of ten years and a salvage value of $50,000. On December 31, 2015 the old machine has a fair value of $450,000 and is exchanged for a new machine with a fair value of $446,000. The exchange lacks commercial substance. Wayne Co. also received $4,000 cash. Assume that the last fiscal period ended on Decmeber 31, 2015, and that straight-line deprecation is used.
Show the calculation of the amount of gain or loss to be recognized by Wayne Co. from the exchange.
Prepare all entries that are necessary on December 31, 2015 for Wayne Co.
can someone show the step by step process on how they reached the answer. So that I can use it as a study tool. Thanks
Explanation / Answer
$
409.40
Oct 31.2011. Machine cost 650,000.0 Residual Value= 50,000.0 Depreciable value 600,000.0 Useful life in years 10.0 Yearly SL depreciation 60,000.0 Depreciation 2011 10,000.0 Depreciation 2012 60,000.0 Depreciation 2013 60,000.0 Depreciation 2014 60,000.0 Depreciation 2015 60,000.0 total Depreciation Till Dec 31.2015. 250,000.0 Carrying Value on Dec 31.2015 400,000.0 Fair Value Old machine 450,000.0 Fair Value new machine 446,000.0 Cash Received = 4,000.0 Cash receipt is less than 25% of old asset FV Gain Considering FV of new machine with Book value old machine= 46,000.0 Cash as % of old machine Fair Value = 4000/450000= 0.89% Gain Recognition will be 0.89% of Gain =(446000-400000)*0.89% Gain recognized =$
409.40
As new asset will be recognized at carrying value of old asset less Cash plus recognized gain; The value of new asset in book =400000-4000+409.40 =$396409.40 JV entry Account Tile Dr $ Cr $ Old Machine 650,000.0 Accumulated Depreciation 250,000.0 New Machine 396,409.4 Gain on Asset Exchange 409.4 Cash 4,000.0 650,409.4 650,409.4Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.