On January 2, 2008, Sahara, Inc. purchased a silkscreen machine for its new clothing line. Sahara incurred the following costs related to the machine:
Purchase price .............................................................. $120,000
Freight charges for delivery from manufacturer to Sahara ............. $ 5,000
Installation costs ............................................................ $ 8,000
Cost of testing machine operation to ensure proper installation ........$ 4,000
This machine is estimated to have a ten (10) year useful life with a salvage value of $18,000. Sahara will use the double-declining-balance (DDB) method to depreciate this machine.
Part 1: In the space below, calculate and record the depreciation expense on this bottling machine for 2009. Show and label your calculations.
Part 2: Assume it is now August 1, 2010 and Sahara decides to exchange this machine for a newer model. This exchange will cost Sahara a total of $40,000. The fair value of the old machine is $70,000. In the space below, prepare the journal entry to record this exchange. Show and label your calculations.