Aerospace Manufacturing recently replaced a piece of machinery at a net price of $4,000, f.o.b. destination. The replacement was necessary because the machine burned out making it inoperable. Therefore, the machine had no resale value and had to be scrapped. Aerospace's insurance policy provided for a replacement of the machine and paid the cost of the new machine directly to the manufacturer, less the deductible amount Aerospace paid to the manufacturer. The $4,000 that Aerospace paid was the amount of the deductible that it has to pay on any single claim on its insurance policy. The new machine represents the same value in use to Aerospace. The old machine originally cost $70,000. It's book value was $40,000 at the time of the burn out and had a market value of $50,800 before the burn out, based on recent transactions involving similar machinery. Freight and installation charges for the new machine cost Aerospace an additional $1,100 cash. Required a) Prepare the general journal entry to record the transaction to replace the machinery that was burned out. b) Repeat part (a), but assume that the new machine will result in significant savings to Aerospace, since the new machine is more efficient and requires less operating time.
Aerospace Manufacturing recently replaced a piece of machinery at a net price of $4,000, f.o.b. destination. The replacement was necessary because the machine burned out making it inoperable. Therefore, the machine had no resale value and had to be scrapped. Aerospace's insurance policy provided for a replacement of the machine and paid the cost of the new machine directly to the manufacturer, less the deductible amount Aerospace paid to the manufacturer. The $4,000 that Aerospace paid was the amount of the deductible that it has to pay on any single claim on its insurance policy. The new machine represents the same value in use to Aerospace. The old machine originally cost $70,000. It's book value was $40,000 at the time of the burn out and had a market value of $50,800 before the burn out, based on recent transactions involving similar machinery. Freight and installation charges for the new machine cost Aerospace an additional $1,100 cash. Required a) Prepare the general journal entry to record the transaction to replace the machinery that was burned out. b) Repeat part (a), but assume that the new machine will result in significant savings to Aerospace, since the new machine is more efficient and requires less operating time.
Chapter12: Nonrecognition Transactions
Section: Chapter Questions
Problem 17P
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Question
Transcribed Image Text:Aerospace Manufacturing recently replaced a piece of machinery at a net price of $4,000,
f.o.b. destination. The replacement was necessary because the machine burned out
making it inoperable. Therefore, the machine had no resale value and had to be scrapped.
Aerospace's insurance policy provided for a replacement of the machine and paid the cost
of the new machine directly to the manufacturer, less the deductible amount Aerospace
paid to the manufacturer. The $4,000 that Aerospace paid was the amount of the
deductible that it has to pay on any single claim on its insurance policy. The new machine
represents the same value in use to Aerospace.
The old machine originally cost $70,000. It's book value was $40,000 at the time of the
burn out and had a market value of $50,800 before the burn out, based on recent
transactions involving similar machinery. Freight and installation charges for the new
machine cost Aerospace an additional $1,100 cash.
Required
a) Prepare the general journal entry to record the transaction to replace the machinery
that was burned out.
b) Repeat part (a), but assume that the new machine will result in significant savings to
Aerospace, since the new machine is more efficient and requires less operating time.
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