On July 1, 2016, Alpha Company purchased for $76,000, equipment having a service life of eight...

On July 1, 2016, Alpha Company purchased for $76,000, equipment having a service life of eight years and an estimated residual value of $14,000. Alpha has recorded depreciation of the equipment using the straight line 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.

Expert Solution

Date	Accounts title	Debit	Credit
31-Dec-18	Depreciation expense - Equipment	$7,750
	Accumulated Depreciation - Equipment		$7,750
	(to update 2018's depreciation)

31-Dec-18	Equipment (new machine)	$35,000
	Accumulated Depreciation - Equipment	$19,375
	Loss on exchange	$21,625
	Equipment (old)		$76,000
	(to record the exchange)

Working

A	Cost [1 jul 2016]	$76,000
B	Estimated residual value	$14,000
C = A - B	Depreciable base	$62,000
D	Useful life	8
E = C/D	Annual 12 month depreciation	$7,750
	2016's depreciation [recorded] 7750 x 6/12	$3,875
	2017's depreciation [recorded]	$7,750
	2018's depreciation [not yet recorded]	$7,750
F	Total Accumulated Depreciation	$19,375
G = A - F	Book Value of Equipment	$56,625
H	Fair Value of machine	$35,000
I = G - H	Loss on Exchange	$21,625

ekkarill92 answered 3 years ago

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