Question

Vaughn Co. had a sheet metal cutter that cost $108,000 on January 5, 2016. This old...

Vaughn Co. had a sheet metal cutter that cost $108,000 on January 5, 2016. This old cutter had an estimated life of ten years and a salvage value of $16,000. On April 3, 2021, the old cutter is exchanged for a new cutter with a fair value of $60,000. The exchange lacked commercial substance. Vaughn also received $15,000 cash. Assume that the last fiscal period ended on December 31, 2020, and that straight-line depreciation is used.

(b)

Prepare all entries that are necessary on April 3, 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Account Titles and Explanation

Debit

Credit

(To record depreciation.)

(To record exchange of machineries.)
Business   Accounting   
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Homework Answers

Answer #1
Particulars Debit Credit
Depreciation expense 2300
accumulated depreciation 2300
accumulated depreciation (46000+2300) 48300
machinery 60000
cash 15000
machinery 108000
gain on disposal 15300
WORKING
Depreciation = (cost -salvage value)/life of assets
Depreciation = (108000-16000)/10 =9200
depreciation for 2021 (jan to march) = 9200*3/12 = 2300
depreciation 2016 to 2021 = 9200*5= 46000
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