ACCT550_Week_7_Practice_Question_Solutions

# ACCT550_Week_7_Practice_Question_Solutions - Week 7...

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Week 7 Practice Question Solutions EXERCISE 11-8 (20–25 minutes) Old Machine June 1, 2012 Purchase \$31,000 Freight 200 Installation        500 Total cost \$31,700 Annual depreciation charge: (\$31,700 – \$2,500)  ÷  10 = \$2,920 On June 1, 2013, debit the old machine for \$1,980; the revised total cost   is   \$33,680   (\$31,700   +   \$1,980);   thus   the   revised   annual depreciation charge is: (\$33,680 – \$2,500 – \$2,920)  ÷  9 = \$3,140. Book value, old machine, June 1, 2016:    [\$33,680 – \$2,920 – (\$3,140 X 3)] = \$21,340 Less: Fair value   20,000 Loss on exchange 1,340 Cost of removal          75 Total loss \$  1,415 (Note   to   instructor:   The   above   computation   is   done   to   determine whether there is a gain or loss from the exchange of the old machine

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with the new machine and to show how the cost of removal might be reported. Also, if a gain occurs, the gain is not deferred (1) because
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