Question

A machine cost $1104000, has annual depreciation of $184000, and has accumulated depreciation of $874000 on December 31, 2020. On April 1, 2021, when the machine has a fair value of $253000, it is exchanged for a machine with a fair value of $1242000 and the proper amount of cash is paid. The exchange had commercial substance. The new machine should be recorded at $1127000. $1242000. $989000. $1219000.

Answer 1

$1,242,000

Step-by-step explanation:

The new machine is to be recorded at its Fair Value which is $1,242,000 because the exchange has a commercial substance. Asset forgone is credited by its original cost, and accumulated depreciation till date of exchange is debited. Cash paid and loss or gain is adjusted as required. But the new asset is debited by the amount of its Fair Value on the day of exchange.