E11-8B (Depreciation Computation—Replacement, Nonmonetary Exchange) Sachs Corporation bought a machine on October 1, 2010, for $68,000, f.o.b. the place of manufacture. Freight to the point where it was set up was $300, and $700 was expended to install it. The machine’s useful life was estimated at 10 years, with a salvage value of $4,000. On October 1, 2013, an essential part of the machine is replaced, at a cost of $7,000, with one designed to reduce the cost of operating the machine. The cost of the old part and related depreciation cannot be determined with any accuracy.
On October 1, 2016, the company buys a new machine of greater capacity for $86,000, delivered, trading in the old machine which has a fair market value and trade-in allowance of $22,000. To prepare the old machine for removal from the plant cost $75, and expenditures to install the new one were $3,000. It is estimated that the new machine has a useful life of 10 years, with a salvage value of $10,000 at the end of that time. The exchange has commercial substance.
Assuming that depreciation is to be computed on the straight-line basis, compute the annual depreciation
on the new equipment that should be provided for the fiscal year beginning October 1, 2014.
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