Question

Question 1

Rogers Co. had a sheet metal cutter that cost $96,000 on January 5, 2010. This old cutter had an estimated life of ten years and a salvage value of $16,000. On April 3, 2015, the old cutter is exchanged for a new cutter with a fair value of $48,000. The exchange had commercial substance. Rogers also received $12,000 cash. Assume that the last fiscal period ended on December 31, 2014, and that straight-line depreciation is used.

Instructions

(a) Show the calculation of the amount of the gain or loss to be recognized by Rogers Co.

(b) Prepare all entries that are necessary on April 3, 2015.

Answer 1

	Answer
	Explanation :
a)	Depreciation per year under SLM =(Cost of the asset-Salvage value)/Life of the asset=(96000-16000)/10	$           8,000
	Depreciation from 2010 to 2014=8000*5=40000	$         40,000
	The machine is sold on april 3 2015.So calculate 3 month depreciation for 2015
	Depreciation for 2015=8000*3/12	$           2,000
	Accumulated Depreciation=40000+2000	$         42,000
b)	Journal entry
Date	Account Titles and Explanations	Debit	Credit
	New Equipment	$         48,000
03/04/2015	Accumulated Depreciation	$         42,000
	Loss on exchange	$         18,000
	To, Old Equipment		$      96,000
	To, Cash		$      12,000
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