Question

Fargo's property plant and equipment consist of a building with cost of $ 840,000 and a salvage value of $40,000 with a 15 year life purchased on 6/1/14 and equipment that cost $88,000 and salvage value of $4,000 with a 5 yr life purchased on 9/1/17. Fargo incurred delivery and installation charges of 8,000 on equipment. Fargo spent 39,000 painting the building during 2019. On 1/1/19 fargo revised estimate on life of building. fargo now estimates that the building will be in service until 12/31/31.

On 10/1/16 Fargo exchanged the piece of equipment for a similar piece of equipment with Rock company. The new equipment has salvage a salvage value of $5000 and is expected to be taken out of service at the same time the old equipment would have been. Transaction had no commercial substance. Fair value of equipment they gave up was 47,000 the fair value of the equipment received from Rock was 40,000 in addition to the equipment they received 7,000 cash

1. Prepare journal entry to record the transaction on Fargos books

2. Fargo considers depreciation to be admin expense. compute depreciation for building and equipment 2019. fargo computes depreciation to nearest month and uses 200% declining balance method for both Can someone show me how to do this step by step

Answer 1

	Journal Entry
	Particular	Debit($)	Credit($)
	Repair & Maintenance	39,000
	( painting Cost )		39,000
Oct'19	Depreciation	15,552
	Accumulated Depreciation		15,552
	( as per Below working - Note 1)
Oct'19	Accumulated Depreciation	59,712
	Equipment New ( As per Question)	40,000
	Cash ( As per Question)	7,000
	Equipment Old ( As per Question)		96,000
	Profit on sale of Equipment( As below)		10,712
	working - Note 2)
Dec'19	Depreciation	62,435
	Accumulated Depreciation		62,435
	( as per Below working - Note 3)

	fargo Property Plan and Equipment
	Building cost $		8,40,000
	Salvage value $		40,000
	15 year life Purchased
	Purchased on		6/1/14
	Building cost $		88,000
	Salvage value $		4,000
	5 year life Purchased
	Purchased on		9/1/17
	Delivery & Installation cost $		8,000
	Painting cost$		39,000
	major working relates to Depreciation
	Double Declining Method		2/n
	Life - 5 Year		5
	rate of depreciation		40%
	Building cost $		88,000
	Installtion cost $ ( As above)		8,000
	Original Cost $ A		96,000
	Purchased on		9/1/17
	Working Note 1
	Depreciation first 3 Month till Dec '17
Dec-17	Depreciation amount ( $96000*40%*3/12)$-B		9,600
	Written down Value (A-B)=c $		86,400
	Full year depreciation
Dec-18	Depreciation amount ( $86400*40%*12/12)$-B-d		34,560
	Written down Value (c-d)=E $		51,840
Oct-19	Depreciation amount ( $51840*40%*9/12)$-F		15,552
Oct-19	Written down Value (E-F)$		36,288
	Working Note 2
	Accumulated depreciation- B $
	As above		59,712
	$9600+$34560+$15552
	Original cost ( as above)-A$		96,000
	Written Down Value ( A-B)$=C		36,288
	Fair value Equipment gave up-D $		47,000
	( as per Question)
	Profit on Sale( D-C) $		10,712
	Working Note 3
	Building cost $ A		8,40,000
	Salvage value $		40,000
	15 year life Purchased
	Purchased on		6/1/14
	Double Declining Method		2/n
	Life - 15 Year		13%
	rate of depreciation		13%
	Year 19 - revised rate
	Life - 14 Year		14%
First Depreciation - 7 Months
	01st June - 31st Dec '14		7 Months
31st Dec '14	Depreciation - 7 Months-B $		65,333	($840000*13%*7/12)
	Written down Value (A-B)=c $		7,74,667
31st Dec '15	Depreciation- d$		1,03,289	($774667*13%*12/12)
	Written down Value (c-d) $-e		6,71,378
31st Dec '16	Depreciation- f$		89,517	($671378*13%*12/12)
	Written down Value (e-f) $=g		5,81,861
31st Dec '17	Depreciation- h$		77,581	($581861*13%*12/12)
	Written down Value (g-h) $-I		5,04,279
31st Dec '18	Depreciation- J$		67,237	($504279*13%*12/12)
	Written down Value (i-J) $ k		4,37,042
31st Dec '19	Depreciation- L$		62,435	($437042*14%*12/12)