A machine cost $229,000, has annual depreciation expense of $45,800, and has accumulated depreciation of $114,500 on December 31, 2020. On April 1, 2021, when the machine has a fair value of $91,210, it is exchanged for a similar machine with a fair value of $291,900 and the proper amount of cash is paid. The exchange lacked commercial substance. Prepare all entries that are necessary at April 1, 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit April 1, 2021 (To record depreciation) April 1, 2021 (To record exchange of machineries)
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
A machine cost $229,000, has annual
Prepare all entries that are necessary at April 1, 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
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Account Titles and Explanation
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Debit
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Credit
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April 1, 2021
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(To record depreciation)
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April 1, 2021
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(To record exchange of machineries)
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