Solved on Feb 11, 2024

The Lalaland Company purchased equipment on 1/1/2012 for $90,000 with 10-year useful life and no salvage value. On 1/1/2017, they traded the old equipment, recording a$ 15,000 gain. What was the fair value of the old equipment?

STEP 1

Assumptions
1. The original cost of the equipment was $90,000. 2. The useful life of the equipment was 10 years. 3. There is no salvage value for the equipment. 4. The equipment was purchased on 1/1/2012 and exchanged on 1/1/2017. 5. Lalaland Company uses the straight-line method (SLM) for depreciation. 6. The company paid$ 36,000 cash in the trade.
7. A gain of $15,000 was recorded on the exchange.
8. The transaction has commercial substance.

STEP 2

Calculate the annual depreciation expense using the straight-line method.
$Annual\, Depreciation\, Expense = \frac{Cost\, of\, the\, Equipment}{Useful\, Life}$

STEP 3

Plug in the values for the cost of the equipment and its useful life to calculate the annual depreciation expense.
$Annual\, Depreciation\, Expense = \frac{\$90,000}{10\, years}$

STEP 4

Calculate the annual depreciation expense.
$Annual\, Depreciation\, Expense = \frac{\$90,000}{10} = \$9,000\, per\, year$

STEP 5

Determine the accumulated depreciation until the exchange date (1/1/2017), which is 5 years after the purchase.
$Accumulated\, Depreciation = Annual\, Depreciation\, Expense \times Number\, of\, Years\, Depreciated$

STEP 6

Plug in the values for the annual depreciation expense and the number of years depreciated to calculate the accumulated depreciation.
$Accumulated\, Depreciation = \$9,000 \times 5\, years$

STEP 7

Calculate the accumulated depreciation.
$Accumulated\, Depreciation = \$9,000 \times 5 = \$45,000$

STEP 8

Calculate the book value of the old equipment at the time of the exchange.
$Book\, Value = Original\, Cost - Accumulated\, Depreciation$

STEP 9

Plug in the values for the original cost and the accumulated depreciation to calculate the book value.
$Book\, Value = \$90,000 - \$45,000$

STEP 10

Calculate the book value of the old equipment.
$Book\, Value = \$90,000 - \$45,000 = \$45,000$

STEP 11

Determine the fair value of the old equipment by considering the cash paid, the book value of the old equipment, and the gain on the transaction.
$Fair\, Value\, of\, Old\, Equipment = Book\, Value + Cash\, Paid + Gain$

STEP 12

Plug in the values for the book value, cash paid, and gain to calculate the fair value of the old equipment.
$Fair\, Value\, of\, Old\, Equipment = \$45,000 + \$36,000 + \$15,000$

STEP 13

Calculate the fair value of the old equipment.
$Fair\, Value\, of\, Old\, Equipment = \$45,000 + \$36,000 + \$15,000 = \$96,000$
The fair value (trade-in value) of the old equipment was $96000.

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The Lalaland Company purchased equipment on 1/1/2012 for $90,000 with 10-year useful life and no salvage value. On 1/1/2017, they traded the old equipment, recording a$ 15,000 gain. What was the fair value of the old equipment?

STEP 1

STEP 2

Calculate the annual depreciation expense using the straight-line method.
$Annual\, Depreciation\, Expense = \frac{Cost\, of\, the\, Equipment}{Useful\, Life}$

STEP 3

Plug in the values for the cost of the equipment and its useful life to calculate the annual depreciation expense.
$Annual\, Depreciation\, Expense = \frac{\$90,000}{10\, years}$

STEP 4

Calculate the annual depreciation expense.
$Annual\, Depreciation\, Expense = \frac{\$90,000}{10} = \$9,000\, per\, year$

STEP 5

Determine the accumulated depreciation until the exchange date (1/1/2017), which is 5 years after the purchase.
$Accumulated\, Depreciation = Annual\, Depreciation\, Expense \times Number\, of\, Years\, Depreciated$

STEP 6

Plug in the values for the annual depreciation expense and the number of years depreciated to calculate the accumulated depreciation.
$Accumulated\, Depreciation = \$9,000 \times 5\, years$

STEP 7

Calculate the accumulated depreciation.
$Accumulated\, Depreciation = \$9,000 \times 5 = \$45,000$

STEP 8

Calculate the book value of the old equipment at the time of the exchange.
$Book\, Value = Original\, Cost - Accumulated\, Depreciation$

STEP 9

Plug in the values for the original cost and the accumulated depreciation to calculate the book value.
$Book\, Value = \$90,000 - \$45,000$

STEP 10

Calculate the book value of the old equipment.
$Book\, Value = \$90,000 - \$45,000 = \$45,000$

STEP 11

Determine the fair value of the old equipment by considering the cash paid, the book value of the old equipment, and the gain on the transaction.
$Fair\, Value\, of\, Old\, Equipment = Book\, Value + Cash\, Paid + Gain$

STEP 12

Plug in the values for the book value, cash paid, and gain to calculate the fair value of the old equipment.
$Fair\, Value\, of\, Old\, Equipment = \$45,000 + \$36,000 + \$15,000$

STEP 13

Calculate the fair value of the old equipment.
$Fair\, Value\, of\, Old\, Equipment = \$45,000 + \$36,000 + \$15,000 = \$96,000$
The fair value (trade-in value) of the old equipment was $96000.

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STEP 1

STEP 2

Calculate the annual depreciation expense using the straight-line method.Annual Depreciation Expense=Cost of the EquipmentUseful LifeAnnual\, Depreciation\, Expense = \frac{Cost\, of\, the\, Equipment}{Useful\, Life}AnnualDepreciationExpense=UsefulLifeCostoftheEquipment​

STEP 3

Plug in the values for the cost of the equipment and its useful life to calculate the annual depreciation expense.Annual Depreciation Expense=$90,00010 yearsAnnual\, Depreciation\, Expense = \frac{\$90,000}{10\, years}AnnualDepreciationExpense=10years$90,000​

STEP 4

Calculate the annual depreciation expense.Annual Depreciation Expense=$90,00010=$9,000 per yearAnnual\, Depreciation\, Expense = \frac{\$90,000}{10} = \$9,000\, per\, yearAnnualDepreciationExpense=10$90,000​=$9,000peryear

STEP 5

STEP 6

Plug in the values for the annual depreciation expense and the number of years depreciated to calculate the accumulated depreciation.Accumulated Depreciation=$9,000×5 yearsAccumulated\, Depreciation = \$9,000 \times 5\, yearsAccumulatedDepreciation=$9,000×5years

STEP 7

Calculate the accumulated depreciation.Accumulated Depreciation=$9,000×5=$45,000Accumulated\, Depreciation = \$9,000 \times 5 = \$45,000AccumulatedDepreciation=$9,000×5=$45,000

STEP 8

Calculate the book value of the old equipment at the time of the exchange.Book Value=Original Cost−Accumulated DepreciationBook\, Value = Original\, Cost - Accumulated\, DepreciationBookValue=OriginalCost−AccumulatedDepreciation

STEP 9

Plug in the values for the original cost and the accumulated depreciation to calculate the book value.Book Value=$90,000−$45,000Book\, Value = \$90,000 - \$45,000BookValue=$90,000−$45,000

STEP 10

Calculate the book value of the old equipment.Book Value=$90,000−$45,000=$45,000Book\, Value = \$90,000 - \$45,000 = \$45,000BookValue=$90,000−$45,000=$45,000

STEP 11

STEP 12

Plug in the values for the book value, cash paid, and gain to calculate the fair value of the old equipment.Fair Value of Old Equipment=$45,000+$36,000+$15,000Fair\, Value\, of\, Old\, Equipment = \$45,000 + \$36,000 + \$15,000FairValueofOldEquipment=$45,000+$36,000+$15,000

STEP 13

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Download Studdy AI Tutor now. Learn with ease and get all help you need to be successful at school.

Calculate the annual depreciation expense using the straight-line method.
$Annual\, Depreciation\, Expense = \frac{Cost\, of\, the\, Equipment}{Useful\, Life}$

Plug in the values for the cost of the equipment and its useful life to calculate the annual depreciation expense.
$Annual\, Depreciation\, Expense = \frac{\$90,000}{10\, years}$

Calculate the annual depreciation expense.
$Annual\, Depreciation\, Expense = \frac{\$90,000}{10} = \$9,000\, per\, year$

Plug in the values for the annual depreciation expense and the number of years depreciated to calculate the accumulated depreciation.
$Accumulated\, Depreciation = \$9,000 \times 5\, years$

Calculate the accumulated depreciation.
$Accumulated\, Depreciation = \$9,000 \times 5 = \$45,000$

Calculate the book value of the old equipment at the time of the exchange.
$Book\, Value = Original\, Cost - Accumulated\, Depreciation$

Plug in the values for the original cost and the accumulated depreciation to calculate the book value.
$Book\, Value = \$90,000 - \$45,000$

Calculate the book value of the old equipment.
$Book\, Value = \$90,000 - \$45,000 = \$45,000$

Plug in the values for the book value, cash paid, and gain to calculate the fair value of the old equipment.
$Fair\, Value\, of\, Old\, Equipment = \$45,000 + \$36,000 + \$15,000$