Rogers Co. had a sheet metal cutter that cost $108,000 on January 5, 2013. This

Question

Rogers Co. had a sheet metal cutter that cost $108,000 on January 5, 2013. This old cutter had an estimated life of ten years and a salvage value of $15,000. On April 3, 2018, the old cutter is exchanged for a new cutter with a fair value of $60,000. The exchange lacked commercial substance. Rogers also received $15,000 cash. Assume that the last fiscal period ended on December 31 2017, and that straight-line depreciation is used Calculate the gain or loss to be recognized by Rogers Co Loss recognized $ 42 SHOW LIST OF ACCOUNTS Prepare all entries that are necessary on April 3, 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit To record depreciation.)

Explanation / Answer

Answer a

Calculation of Gain or loss to be recognized

Note : As per U.S GAAP , when an exchange transaction lack commercial substance than gain to recognize only to the extent of cash proportion of total gain.

Answer b

Journal Entries

Note : We can also varify the value of new machinay :

New machinay value :Fair value - Gain not recognised = $60,000 - ($15,825 - $3,165) = $47,340

Amount ($) Cost of machinary - old 108,000 Less : Accumulated Depreciation : [($108,000 - $15,000) / 10 years] * 5.25 years (48,825) Net Book Value 59,175 Less : Fair value + boot (cash ) received : $60,000 +$15,000 75,000 Gain 15,825 Gain to recognize (refer note below) : ( $15,000 / $75,000) * $15,825 3,165

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