Question

Pr. 10-124—Nonmonetary exchange.

Pratt Co. has a machine that cost $255,000 on March 20, 2003. This old machine had an estimated life of ten years and a salvage value of $15,000. On December 23, 2007, the old machine is exchanged for a new machine with a market value of $162,000. The exchange lacked commercial substance. Pratt also received $18,000 cash. Assume that the last fiscal period ended on December 31, 2006, and that straight-line depreciation is used.

Instructions

(a) Show the calculation of the amount of gain or loss to be recognized by Pratt Co. from the exchange. (Round to the nearest dollar.)

(b) Prepare all entries that are necessary on December 23, 2007. Show a check of the amount recorded for the new machine.

Answer 1

Solutions Given data; cost of machine - celvage value = - market value = Cash received * $255000 $ 15000 $162000 $ 18000 · (9) Annual depreciation of old machinary = 255000 15000 --$240ou o = $24000 Depreciarily for years. 2013 = 24000x9. 12 ; z 2160vo = $$18000 Book Value on Dec 23 200 2 -5S OD 5000 - 2490X4 2 a 55000-11Youo $141000 Note; Full year depreciation is considered as different of danga 75 neslegible

gain on exchange - 162000 + 18001 - 1400 39000 I b) Jazional entries on 23rd decembes goot. particulars Delit a credir Newbrachine - Dr 162000 161 000 Cash . De 1800 39000 to old machine To gain exchange (Being exchange of old machine) aroup 20000 Depreciation on Old machine to old machine