Reference no: EM132419656

Problem: ABC Limited acquired an alphabet machine on January 1, 2006 for $57,500 that fabricated lower-case letters. It had a useful life of 12 years and a residual value of $4,590. It depreciates this asset using straight line depreciation.

 

On January 1, 2008, a custom addition was added to the machine which cost $7,750. This increased its useful life from the original 12 years to 15 years and it changed residual value from $4,596 to $3,000. The company needs to amend its depreciation.

 

 

On March 1, 2010, there was a non-monetary exchange. ABC Limited traded in its old machine and purchased a new alphabet machine with a market value of $62,750 that fabricated upper-case letters as well as lower-case letters. It traded its old asset plus cash to buy this new machine. As part of this acquisition, the company paid $14,650 in cash.

 

Assume that the old machine had a market value of $50,000 on March 1, 2010 (the date of the trade).

 

Required:

 

Question 1: What was depreciation for each year (for fiscal 2006, 2007, 2008, and 2009) on the old machine? Show calculations.

Question 2: Record the journal entry to record the transaction on March 1, 2010 and assume there is commercial substance for this transaction. (hint: you must depreciate the old machine to March 1, 2010. Please answer the question by provide detail calculation process.