Homework Answers
Requirement 1:
Amortizable Cost
= Cost - Residual Value
= $5,000 - $1,000
= $4,000
Annual Amortization
= Amortizable Cost * Amortization Rate
= $4,000 * 25%
= $1,000
Old Heater Accumulated Amortization as on Exchange date (March 30, 2020)
= Amortization for 2018 and 2019 + Amortization for 3 months in 2020
= ($1,000 * 2) + ($1,000 * 3/12)
= $2,000 + $250
= $2,250
Old Heater Accumulated Amortization = $2,250
Requirement 2:
Calculation of Gain/ Loss on exchange:
Worth of New Heater = $6,000
Cash paid = $3,000
Book Value of old heater
= Cost - Accumulated Amortization
= $5,000 - $2,250
= $2,750
Gain on exchange
= Worth of new heater - Cash paid - Book Value of old heater
= $6,000 - $3,000 - $2,750
= $250
Gain on exchange = $250
Requirement 3:
Journal Entry to record the exchange transaction:
New Heater a/c Dr $6,000
Accumulated Amortization a/c Dr $2,250
To Old Heater a/c $5,000
To Cash a/c $3,000
To Gain on exchange a/c $250
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