Splish Corporation bought a machine on June 1, 2015, for $35,030, f.o.b. the place of manufacture....

Splish Corporation bought a machine on June 1, 2015, for $35,030, f.o.b. the place of manufacture. Freight to the point where it was set up was $226, and $565 was expended to install it. The machine’s useful life was estimated at 10 years, with a salvage value of $2,825. On June 1, 2016, an essential part of the machine is replaced, at a cost of $2,237, with one designed to reduce the cost of operating the machine. The cost of the old part and related depreciation cannot be determined with any accuracy. On June 1, 2019, the company buys a new machine of greater capacity for $39,550, delivered, trading in the old machine which has a fair value and trade-in allowance of $22,600. To prepare the old machine for removal from the plant cost $85, and expenditures to install the new one were $1,695. It is estimated that the new machine has a useful life of 10 years, with a salvage value of $4,520 at the end of that time. (The exchange has commercial substance.) Assuming that depreciation is to be computed on the straight-line basis, compute the annual depreciation on the new equipment that should be provided for the fiscal year beginning June 1, 2019. (Round answer to 0 decimal places, e.g. 45,892.) Depreciation for the year beginning June 1, 2019

Expert Solution

Ans:

Old Machine
Purchase	$35,030
Freight	$225
Installation	$565
Total Cost	$35,920

Salvage Value $2825

Useful Life 10 Years

Annual Depreciation Charge=$35920-$2825/10 Years=$3309.50=$3310(Rounded Off)

On June 1, 2016 Debit the old machine for $2237, then the revised total cost is $38157 ($35920+$2237)

Thus revised annual Depreciation=$38,157-$3310-$2825/9 Years=$3558

Book Value of Old Machine on (38,157-3*3358-3310)	$24,773
Fair Value	($22,600)
Loss on Exchange	$2173
Cost of Removal	$85
Total Loss	$2258

New Machine
Cash Paid($39,550-$22,600)	$16,950
Fair Value of Old Machine	$22,600
Installation Cost	$1695
Total Cost of New Machine	$41,245

Salvage value $4520

Expected Useful Life 10 Years

Depreciation for the Year Beginning June 1 2019=$41,245-$4520/10=$$3672.50=$3673

Therefore the Depreciation for the Year beginning June 1 2019=$3673

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