goldman corp. bought a machine on june 1,2008, for $31,800, f.o.b. the place of manufacturer. freight to the point where it was setup was $200, and $500 was expended to install it. the machine's useful life was estimated at 10 years, with residual value of $2,500. on june 1, 2009, 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 book value of the old part is estimated to be $900.
on june 1, 2012, the company buys a new machine of greater capacity for $35,000, delivering, 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 residual value of $4,000 at the end of the time. the exchange has commercial substance.