ABC purchased a computer that cost $60,000 on March 31, 2014. This computer had

Question

ABC purchased a computer that cost $60,000 on March 31, 2014. This computer had an estimated useful life of six years and a salvage value of $6000. ABC determine depreciation expense based upon the sum of years' digits method (round all numbers to the nearest whole number and all percentages to the nearest 2 decimal places). On December 31, 2015, the old computer is exchanged for a similar computer with a fair market value of $40000. Assume this transaction lacks commercial substance. Determine the recognized gain/loss on the trade (if any) assuming each of the following independent scenarios:

State (1) GAIN or LOSS and (2) AMOUNT of gain/loss ABC paid $10,000 on the exchange ABC paid $2000 on the exchange ABC received $3000 on the exchange

Explanation / Answer

Solution:

  

(1). Gain or Loss Caluculation:

2015 Old Computer Value 33,857

   2015 Old Computer Exchange Value 40,000

   Profit (or) Gain = 6,143

(2). Gain or Loss Caluculation:

   2015 Old Computer Value 33,857

   2015 Old Computer Value 40,000

Exchange Value Paid 10,000

   Loss on Exchange 3,857

Depreciation Year
Depreciation
Expense 2014 $12,857 2015 $13,286 2016 $10,714 2017 $8,143 2018 $5,571 2019 $3,000 2020 $429

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