ACG 3101 Lecture 20: Chapter 10 Notes part 2
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Regarding Opeion 3, How doyou get Equipment 70000?
Regarding Option 4, how doyou get 22% and what does it mean?And how do you get Equipment57000
Exercise 9 Exchange ofNonmonetary Assets: The WelchCompany owns a machine used in the companyâsoperations. The machine cost $75,000 and hasaccumulated depreciation of $30,000 based on anaccelerated depreciation method. Welch Company would like topurchase a newer machine to replace the existing machine and isconsidering several options. The machine owned by Welch Company hasa fair (market) value of $55,000.
Based on the information given above,what is the gain on the disposal of the used machine? (Note: WelchCompany may or may not be able to recognize this gain.)
Book value = Cost â Accm Depr = $75,000 â 30,000 =$45,000
Gain/loss = Fair value â Book Value = $55,000 â 45,000 = $10,000gain
Required: Record thejournal entry for the disposal under each of the followingoptions.
SALE
Option 1: WelchCompany can sell the used machine to a competitor for $60,000 cash.The company would then purchase a new machine from a dealer.Recognize gain?
Cash | 55,000 | ||
Accm depreciation - equipment | 30,000 | ||
Gain insale | 10,000 | ||
Equipment | 75,000 |
NON-MONETARY EXCHANGE â COMMERCIAL SUBSTANCE (bootpaid)
Option 3: WelchCompany can exchange the used machine for a newer machine(currently being used by another company). The newer machine has afair value of $70,000. Welch Company would have to pay $15,000 incash. Assume the exchange has commercial substance. Is this amonetary exchange? Recognize gain?
Equipment (received-new) | 70,000 | ||
Accm depreciation - equipment | 30,000 | ||
Gain ondisposal (or exchange) | 10,000 | ||
Equipment(given-old) | 75,000 | ||
Cash | 15,000 |
NON-MONETARY EXCHANGE â NO COMMERCIAL SUBSTANCE(boot paid)
Option 4: WelchCompany can exchange the used machine for a newer machine(currently being used by another company). The newer machine has afair value of $67,000. Welch Company would have to pay $12,000 incash. Assume the exchange has no commercial substance. Is this amonetary exchange? Recognize gain? 12/67 = 22%nonmonetary
Equipment (received-new) | 57,000 | ||
Accm depreciation - equipment | 30,000 | ||
Cash | 12,000 | ||
Equipment(given-old) | 75,000 |
NON-MONETARY EXCHANGE â COMMERCIAL SUBSTANCE (bootreceived)
Option 5: WelchCompany has also been approached by a competitor with a similarmachine worth $50,000. The competitor has offered to pay $5,000cash to Welch. Assume this exchange has commercial substance. Isthis a monetary exchange? Recognizegain?
Equipment (received-new) | 50,000 | ||
Accm depreciation - equipment | 30,000 | ||
Cash | 5,000 | ||
Gain ondisposal (or exchange) | 10,000 | ||
Equipment(given-old) | 75,000 |