Question

On July 1, 2016, Alpha Company purchased for $76,000, equipment having a service life of eight years and an estimated residual value of $4,000. Alpha has recorded depreciation of the equipment using the double-declining balance method. On December 31, 2018, before making any annual adjusting entries, the equipment was exchanged for new machinery having a fair value of $35,000. The transaction has commercial substance. Use this information to prepare all General Journal entries (without explanation) required to record the events for December 31, 2018. Round numbers to whole dollars.

Answer 1

Date	Accounts	Debit	Credit
Dec-31-2018	Machinery (new)	$ 35,000
	Accumulated Depreciation	$ 38,594
	Loss on exchange	$   2,406
	Equipment		$ 76,000
	Workings:
	Double - declining balance method:-
	Double declining rate	=	(100%/ 8 years) X 2
		=	25%
Year	Beginning of period book value	Depreciation rate	Depreciation expense	Fraction	Accumulated depreciation	Book value
2016	$                                                                                 76,000	25%	$   9,500	6/12	$    9,500	$     66,500
2017	$                                                                                 66,500	25%	$ 16,625		$ 26,125	$     49,875
2018	$                                                                                 49,875	25%	$ 12,469		$ 38,594	$     37,406