per uestion 1 At the beginning of 2012 LG Company purchased

per uestion) 1. At the beginning of 2012, LG Company purchased new machinery for $502,000. The 8 machinery has an estimated useful life of 8 years and an expected residual value of $70,0oo. Depreciation is computed by the sum-of-the-years\'-digits method. The depreciation expense in 2015 should be A. $160,oo0. B. $144,000. C $96,0oo. D. $60,0oo, Giger Company has an equipment thateo $30,000 is exchanged for the equipment of Masel Company with a fair value of $48,ooo/and $12,000 cash is received. The exchange has commercial substance. How much the new equipment should be recorded and how much of the gain should be recognized from the exchange for Giger Company? A. $28,8o0 and 21,00o gains B. $48,0oo and 9,ooo gains 8100.and has 2. C. D. $51,00o and 6,00o gains. $30,0oo and 12,o00 gains.

Solution

Solution 1:

Purchase cost of new machine = $502,000

Residual value = $70,000

Depreciable cost = $502,000 - $70,000 = $432,000

Useful life = 8 years

Sum of years of digit = 8 + 7 + 6 + 5 + 4 + 3 + 2 +1 = 36

Remaining useful life at begining of 2015 = 5 years

Therefore depreciation for 2015 = $432,000 * 5/36 = $60,000

Hence option D is correct.

Solution 2:

Exchange value for Giger company equipment = $48,000 + $12,000 = $60,000

Book value of equipment of giger company = $81,000 - $30,000 = $51,000

Gain from exhange to recognized for Giger company = $60,000 - $51,000 = $9,000

New equipment will be recorded at its fair value i.e. $48,000

Hence option B is correct.