Skype property plant and equippment consists of a building costing 780000 and a salvage value of 60,000 with a 10 year life purhcased on 6/1/08 and a piece of equipment that cost 88,000 and a salvage value of 4000 with a 5 year life purhcased on 9/1/10. Skype incurred delivery and installation charges of 5000 on the equipment. Skype spent 25000 painting the buildng during 2012. on 1/1/12 Skype revised the estimate on the life of the building Skype now estimates that the building be in service until 12/31/19.
a.) on 10/1/12 Skype exchanged the piece of equipment for a similar piece of equipment with the MSN company. the transaction had no commercial substance. the fair value of equipment they gave up was 38000. the fair value of the equiment recieved from MSN was 33000. In addition to the equipment they receved 5000 in cash. Prepare journal entry to record the transaction on Skypes book.
b.) Skype considers the depreciation to be an administrative expense compute depreciation for both assets for 2012 using 150% declining balance method. Skype computes depreciation to the nearest month.