Question
Questions: Regarding Opeion 3, How do you get Equipment 70000? Regarding Option 4, how do you get 22% and what does it mean?And how do
Questions:
Regarding Opeion 3, How do you get Equipment 70000?
Regarding Option 4, how do you get 22% and what does it mean?And how do you get Equipment 57000
Exercise 9 Exchange of Nonmonetary Assets: The Welch Company owns a machine used in the companys operations. The machine cost $75,000 and has accumulated depreciation of $30,000 based on an accelerated depreciation method. Welch Company would like to purchase a newer machine to replace the existing machine and is considering several options. The machine owned by Welch Company has a fair (market) value of $55,000.
Based on the information given above, what is the gain on the disposal of the used machine? (Note: Welch Company may or may not be able to recognize this gain.)
Book value = Cost Accm Depr = $75,000 30,000 = $45,000
Gain/loss = Fair value Book Value = $55,000 45,000 = $10,000 gain
Required: Record the journal entry for the disposal under each of the following options.
SALE
Option 1: Welch Company 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 in sale |
| 10,000 |
| Equipment |
| 75,000 |
NON-MONETARY EXCHANGE COMMERCIAL SUBSTANCE (boot paid)
Option 3: Welch Company can exchange the used machine for a newer machine (currently being used by another company). The newer machine has a fair value of $70,000. Welch Company would have to pay $15,000 in cash. Assume the exchange has commercial substance. Is this a monetary exchange? Recognize gain?
| Equipment (received-new) | 70,000 |
|
| Accm depreciation - equipment | 30,000 |
|
| Gain on disposal (or exchange) |
| 10,000 |
| Equipment (given-old) |
| 75,000 |
| Cash |
| 15,000 |
NON-MONETARY EXCHANGE NO COMMERCIAL SUBSTANCE (boot paid)
Option 4: Welch Company can exchange the used machine for a newer machine (currently being used by another company). The newer machine has a fair value of $67,000. Welch Company would have to pay $12,000 in cash. Assume the exchange has no commercial substance. Is this a monetary 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 COMMERCIAL SUBSTANCE (boot received)
Option 5: Welch Company has also been approached by a competitor with a similar machine worth $50,000. The competitor has offered to pay $5,000 cash to Welch. Assume this exchange has commercial substance. Is this a monetary exchange? Recognize gain?
| Equipment (received-new) | 50,000 |
|
| Accm depreciation - equipment | 30,000 |
|
| Cash | 5,000 |
|
| Gain on disposal (or exchange) |
| 10,000 |
| Equipment (given-old) |
| 75,000 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started