Reference no: EM132786137

Question - On October 1, 2018, Antone Inc. traded one of its used manufacturing equipment with another company. The fair value of Antone Inc.'s old equipment was $146,000 and the fair value of the new equipment was $142,000. The new equipment has similar functions to the old equipment.

Other information:

The cost of Antone Inc.'s old equipment was $188,000 and the accumulated depreciation balance as of October 1, 2018 was $45,900;

In addition to exchanging its old equipment, Antone Inc. paid cash in the amount of $5,000;

The remaining useful life of the new equipment was 10 years with $10,000 residual value;

Antone Inc. applies declining-balance method at a rate of 30% to depreciate its equipment; and

Antone Inc. applies half-year convention approach to record all its depreciation and amortization.

Required -

1. What valuation method should Antone Inc. apply (i.e. fair value method or net book value method)? Why? Fully explain your answer.

2. What is the amount that Antone Inc. should record for the new equipment? Why?

3. Prepare the journal entry to record the exchange on October 1, 2018.

4. Assuming the fiscal year end was December 31, 2018, prepare the journal entry to record the depreciation of the new equipment.