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Fred Meyer wishes to exchange a unique piece of machinery used in its operations. Fred Meyer...

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Accounting

Fred Meyer wishes to exchange a unique piece of machinery usedin its operations. Fred Meyer has received three offers from othercompanies in the industry, each of which lacks commercialsubstance:

Oryx Energy offered to exchange a Franklin desalination watersystem, and pay $20,900.
Sara Lee offered to exchange a Komatsu 120-ton truck, and pay$62,600.
Dyna-Flex offered to exchange a Massey-Ferguson front-loader, andpay $19,800.

Information concerning each of the assets to be exchanged is notedbelow:

CostAccum DepnFair Value
Fred Meyer--unique piece of machinery$        330,000$        265,000$        181,200
Oryx Energy--Franklin desalination water system          265,000          182,300          160,300
Sara Lee--Komatsu 120-ton truck          330,000          265,000          118,600
Dyna-Flex--Massey-Ferguson front-loader150,00065,000          161,400

Based on the three offers above and assuming Fred Meyer uses thestraight-line method of depreciation with a salvage value of $1,100an estimated useful life of 11 years, what is the annualdepreciation expense of the exchanged asset that produces the leastamount of depreciation expense for Fred Meyer in future years?

Answer & Explanation Solved by verified expert
3.9 Ratings (563 Votes)
The transaction given in question lacks commercial substance sothe value of the newly acquired asset will be Fair    See Answer
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