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LBG Co: Gain and Loss on Equipment

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LBG Co. had a sheet metal cutter that cost $72,000 on January 5, 1999. This old cutter had an estimated life of ten years and a salvage value of $12,000. On April 3, 2004, the old cutter is exchanged for a similar cutter (a similar asset) with a market value of $36,000. LBG Co. also received $9,000 cash. Assume that the last fiscal period ended on December 31, 2003, and that straight-line depreciation is used.

What is the amount of the gain or loss that would be recognized?
What entries would be necessary on April 3, 2004?

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Solution Summary

This response determines the amount of recognized gain or loss for a sheet metal cutter based on fiscal period and straight-line depreciation.

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Part 1
This is a monetary transaction since cash $9,000 is 25% of the fair total value of $36,000. Therefore, all gain and losses should be recorded.

The annual depreciation for the cutter is ($72,000 - $12,000) / 10 years = ...

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