On March 31, 2011, Hammer Inc. acquired new machinery by trading in old machinery, paying $15,000 cash, and issuing a 10% note payable for $10,000. The new machinery's estimated life is six years, with a residual value of $3,000.
The old machinery had been acquired on September 30, 2008, for $25,000. At that time, its estimated useful life was 10 years, with a residual value of $1,000. Depreciation was correctly recorded for 2008, 2009, and 2010. On the date of the trade-in, the old machinery's fair market value was approximately the same as its net carrying value.
The company uses the straight-line method of depreciation and closes its books on December 31.
Required:
a. Give the journal entry to record the 2011 depreciation of the old asset, up to the date of the trade-in on March 31.
b. Give the journal entry to record the trade-in of the old asset and the acquisition of the new one.
c. On March 31, 2017, the machinery acquired in 2011 was retired from service. Give the journal entries that should be made in 2017 related to this machinery, under each of the following assumptions:
i. The machinery could not be sold, so the company wrote it off.
ii. The machinery was sold for $5,000.