Question

On January 1, 2010, the Felix Company purchased a machine to use in the manufacture of...

On January 1, 2010, the Felix Company purchased a machine to use in the manufacture of its product. The invoice cost of the machine was $260,000. At the time of acquisition, the machine had an original estimated useful life of 10 years and an estimated salvage value of $20,000. Annual depreciation was recorded at $24,000 per year. The machine was depreciated using the straight-line method.

On August 1, 2015, Felix exchanged the old machine for a newer model. The new machine had a fair market value of $200,000. The estimated fair value of the old machine was $150,000. Felix also paid $50,000 as part of the exchange transaction.

The old machine was depreciated on Felix’s books up through December 31, 2014.

Required

  1. Bring Felix’s depreciation on this machine up to date through the date of the exchange.
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Homework Answers

Answer #1

Answer (a):

Annual depreciation = (Cost - salvage value) /Useful life = (260000 - 20000) / 10 = $24,000

Depreciation per year from Year 2010 to Year 2014 = $24,000

On August 1, 2015, Felix exchanged the old machine for a newer model.

Depreciation for year 2015 upto Aug 1 = 24000 * 7/ 12 = $14,000

Accumulated Depreciation of the machine upto date of the exchange = $134,000

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