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Straight line depreciation and gain or loss on disposition

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A cutter cost $72000 January 5, 1999 with estimated life of 10 years and salvage value of $12,000. April 3, 2004 it was exchanged for a similar cutter with market value of $36,000. Fenner also received $9,000 cash. The fiscal period ended Dec 31, 2003 and used straight line depreciation.

Show calculation of amount of gain or loss to be recognized by Fenner.

Prepare all entries necessary on April 3, 2004.

Show a check of the amount recorded for the new cutter.

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The detailed step-by-step solution explains the calculation of straight line depreciation and gain or loss on disposition.

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(a) Show calculation of amount of gain or loss to be recognized by Fenner

Cost $72,000.

The depreciation per year is (72,000-12,000)/10 = 6,000 per year. Till 2003 5 years of depreciation is recognized = 6,000X5=30,000. In 2004, depreciation for 3 months is taken = 6,000X3/12 = 1,500. Total depreciation is 31,500
Accumulated depreciation (31,500)
Book value ...

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