On October 1, 2020, WelCo Corp. exchanged machine used in its manufacturing operations for similar but new machine (fair market value: $370,000). WelCo Corp. must pay $40,000 cash for the new machine. The following information pertains to the exchange. WelCo Corp. Machine (cost) $480,000 Accumulated depreciation (as of December 31, 2019) 150,000 Annual depreciation (1/1 ~ 12/31) 40,000 Fair value of machine (old) 330,000 The exchange has commercial substance. Instructions (1) Prepare a journal entry that is necessary to recognize the depreciation expense on October, 2020. (2) Show the calculation of the amount of the gain or loss to be recognized from the disposal of the machine. (3) Prepare an entry that is necessary to record the exchange of the machines on October 1, 2020.
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