Question

Nonmonetary exchange. A machine cost $300,000, has annual depreciation expense of $60,000, and has accumulated depreciation of $150,000 on December 31, 2017. On April 1, 2018, when the machine has a fair value of $120,000, it is exchanged, along with a 240,000 payment, for a similar machine with a fair value of $360,000. The exchange lacked commercial substance. Instructions (a) Write the entry to record depreciation expense and update the accumulated depreciation for the machine given up. (b) Calculate the gain or loss on the exchange of equipment (c) Write the entry to record the exchange

Answer 1

Requirement a

Date	General Journal	Debit	Credit
31/12/17	Depreciation Expenses	$60,000
	To accumulated depreciation		$60,000
	(being depreciation charged)

requirement b

Cost of machine	$3,00,000
Accumulated depreciation	-$2,10,000
Net Cost	$90,000
payment made	$2,40,000
fair value of asset taken over	$3,60,000
Gain	$30,000

Requirement c

Date	General Journal	Debit	Credit
31/12/17	Accumulated Depreciation	$2,10,000
	New Machine	$3,60,000
	To bank		$2,40,000
	To Machine		$3,00,000
	To gain		$30,000
	(Being exchange of machine recorded)