Reference no: EM132497077
Part A:
Bahrain Corporation follows a policy of a 10.0% depreciation charge per year on Machinery and a 5.0% depreciation charge per year on the Equipment. The Salvage Value (Residual Value) was deemed to be nil (zero) for both items.
The following transactions occurred in 2020:
- March 31st, 2020, an Equipment that Bahrain had purchased on January 1st, 2011, for $1,700,000 (with a current fair value of $1,000,000) was exchanged for another Equipment which also had a current fair value of $850,000. Depreciation has been properly charged from January 1st, 2011 through December 31st, 2019.
- On June 30th, 2020, a Machine with a cost of $120,000 (with a current fair value of $50,000) and accumulated depreciation through December 31st, 2019, of $ 90,000 was exchanged, along with $ 75,000 cash, for a parcel of land with a fair market value of $115,000.
Required:
Question 1: compound journal entry for Bahrain Corporation to record the exchange of the Equipment on March 31st, 2020. Since there was no cash in the exchange and the assets involved are sufficiently similarassume that there is no commercial substance.
Question 2: a compound journal entry for Bahrain Corporation to record the exchange of the Machine on June 30th, 2020. Since the assets involved are sufficiently dissimilar, and there was a significant amount of cash in this transaction. This will change Bahrain's economic position, and the transaction has commercial substance
Part B
Mongolia Inc. owns equipment that it purchased on January 1, 2021, for $ 4,000,000 million.
The following additional information is available:
Dec. 31, 2021 - Book value (after recording 2021 depreciation): $ 3,600,000
Dec. 31, 2021 - Fair value: $ 4,100,000
The company uses the revaluation model (asset adjustment method) to account for its property, plant, and equipment.
Required:
Question 3: Assuming the entry for the current year's depreciation has already been recorded, prepare the compound entry to adjust the asset's carrying amount to fair value.