1. A machine cost $240,000, has annual depreciation of $40,000, and has accumulated depreciation of $180,000 on December 31, 2016. On January 1, 2017, when the machine has a fair value of $75,000, it is exchanged for a new machine with a fair value of $60,000 and $ 15,000 cash is received . The exchange lacked commercial substance.

Instructions

(a) Show the calculation of the gain to be recognized from the exchange. (2 marks)

(b) Prepare the entry for the exchange. (3 marks)

2. Havana Company has 100 employees who work 8-hour days and are paid hourly. On January 1, 2019, the company began a program of granting its employees 14 days of paid vacation each year. Vacation days earned in 2019 may first be taken on January 1, 2020. Information relative to these employees is as follows:

Hourly Vacation Days Earned Vacation Days Used

Year Wages by Each Employee by Each Employee

2019 $22 14 0

2020 24 14 10

Havana has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is earned.

Instructions:

What is the amount of expense relative to compensated absences that should be reported on Havans income statement for 2019 and 2020 ? ( 5 marks)