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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