Spoiled Baby Corp sells baby buggies and has begun an equipment replacement project. You are required to determine the Book Value of each of its fixed assets and make decisions regarding the purchases, trades, and disposition of various assets.
Indicate your recommendation and justify your position for each of the following events.
1. SPC purchased a tube extruder on April 3, 2007 for $27,000. It has a useful life of 10 years and a residual value of $4,000. SPC used double declining balance depreciation for this asset. On February 19, 2012 SPC has an offer to sell this unit for 8,000.
A. Calculate the book value (be careful with fractional year usage)
B. Compare that to selling price
2. SPC purchased a winding machine on July 28, 2012 for $21,000. It has a useful life of 6 years or 12,000 hours. It has a residual value of $3,000. SPC is unsure whether to use straight line depreciation or units of production. It anticipates using the equipment approximately 3000 hours each year.
A) Determine depreciation expenses for both method
B) Determine which method would recover the cost quickly
3. SPC purchased a funneling machine on February 9, 2009 for $72,000. It has a useful life of 5 years and a residual value of $12,000. SPC has used Straight line depreciation for this equipment. SPC has determined that this equipment no longer meets its needs and has decided to exchange this unit for a new model. The new Model has a MSRP of $100,000. On December 28, 2012 SPC will exchange its equipment for the new Model and pay $77,000.
A) Determine the book value
B) Determine the cost of new equipment
C) Determine if it is a good idea to exchange
4. SPC has a fully piece of equipment that is currently fully depreciated on its books. This equipment is no longer used and SPC wants to get rid of it. The cost of the equipment is $10,000. The company has been offered $300 for its parts. What is the journal entry that would record this transaction?
A) Determine the book value
B) Close the equipment account and associated accumulated depreciation in the journal entry