E11-8 (Depreciation Computation—Replacement, Nonmonetary Exchange)
Corporation bought a machine on June 1, 2010, for $31,800, f.o.b. the place of manufacture. Freight
to the point where it was set up was $200, and $500 was expended to install it. The machine’s useful
life was estimated at 10 years, with a salvage value of $2,500. On June 1, 2011, an essential part of
the machine is replaced, at a cost of $2,700, with one designed to reduce the cost of operating the
machine. The cost of the old part and related depreciation cannot be determined with any accuracy.
On June 1, 2014, the company buys a new machine of greater capacity for $35,000, delivered,
trading in the old machine which has a fair value and trade-in allowance of $20,000. To prepare the
old machine for removal from the plant cost $75, and expenditures to install the new one were
$1,500. It is estimated that the new machine has a useful life of 10 years, with a salvage value of
$4,000 at the end of that time. The exchange has commercial substance.