Vargos 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. vargo incurred delivery and installation charges of 5000 on the equipment. vargo spent 25000 painting the buildng during 2012. on 1/1/12 vargo revised the estimate on the life of the building vargo now estimates that the building be in service until 12/31/19.
a.) on 10/1/12 vargo exchanged the piece of equipment for a similar piece of equipment with the eakin company. the transaction had o commercial substance. the fair value of equipment they gave up was 38000. the fair value of the equiment recieved from eakin was 33000. In addition to the equipment they receved 5000 in cash. Prepare journal entry to record the transaction on vargos book.
b.) Vargo considers the depreciation to be an administrative expense computer depreciation for both assets for 2012 using 150% declining balance method. vargo computes depreciation to the nearest month.