Problem 11-5 Property, plant, and equipment and intangible assets; comprehensive
ID: 2532146 • Letter: P
Question
Problem 11-5 Property, plant, and equipment and intangible assets; comprehensive [LO11-2]
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2016. The accounting department of Thompson has started the fixed-asset and depreciation schedule presented below. You have been asked to assist in completing this schedule. In addition to ascertaining that the data already on the schedule are correct, you have obtained the following information from the company's records and personnel (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):
Depreciation is computed from the first of the month of acquisition to the first of the month of disposition.
Land A and Building A were acquired from a predecessor corporation. Thompson paid $882,500 for the land and building together. At the time of acquisition, the land had a fair value of $97,000 and the building had a fair value of $873,000.
Land B was acquired on October 2, 2016, in exchange for 3,700 newly issued shares of Thompson’s common stock. At the date of acquisition, the stock had a par value of $5 per share and a fair value of $32 per share. During October 2016, Thompson paid $11,100 to demolish an existing building on this land so it could construct a new building.
Construction of Building B on the newly acquired land began on October 1, 2017. By September 30, 2018, Thompson had paid $280,000 of the estimated total construction costs of $370,000. Estimated completion and occupancy are July 2019.
Certain equipment was donated to the corporation by the city. An independent appraisal of the equipment when donated placed the fair value at $18,800 and the residual value at $2,700.
Machine A’s total cost of $105,000 includes installation charges of $620 and normal repairs and maintenance of $12,600. Residual value is estimated at $5,500. Machine A was sold on February 1, 2018.
On October 1, 2017, Machine B was acquired with a down payment of $4,700 and the remaining payments to be made in 10 annual installments of $4,700 each beginning October 1, 2018. The prevailing interest rate was 9%.
Requirec Supply the correct amount for each answer box on the schedule. (Round your final answers to nearest whole dollar.) HOMPSON CORPORAT Fixed Asset and Depreciation Schedule For Fiscal Years Ended September 30, 2017, and September 30, 2018 Acquisition Date Depreciation Method Estimated Life in Years Depreciation for Year Ended 9/30 Assets Cost Residual 2017 2018 Land A Building A Land B Building B Donated Equipment 10/2/16 Machine A Machine B 101/16 10 1/16 10/2/16 Under construction NIA $73,950 NIA NIA SL NIA SL 2.700 | 150% Declining balance 5,500 Sum-of-the years'-digits SL NIA NIA NIA 14,700 NIA NIA 30 10 10 15 NIA 280,000 to date 10/2/16 101/17Explanation / Answer
THOMPSON CRPORATION Fixed Assets and Depreciation Schedule For Fiscal Years Ended Sep 30, 2017 and Sep 30, 2018 Assests Acquisition Date Cost Residual Depreciation Method Estimated life in years 2017 2018 Land A 1-Oct-16 88,250 N/A N/A N/A N/A N/A Building A 1-Oct-16 794,250 73,950 SL 49 14,700 14,700 Land B 2-Oct-16 129,500 N/A N/A N/A N/A N/A Building B Under Construc. 280,000 - SL 30 No Dep. Before Use No Dep. Before Use Donated Equip 2-Oct-16 18,800 2,700 150% Declining 10 2,820 2,397 Machine A 2-Oct-16 92,400 5,500 Sum of Digits 10 15,800 4,740 Machine B 1-Oct-17 34,863 SL 15 - 2,324 Allocation of cost in proportion to appraised value at date of exchange: Fair Value % of Total Allocation of Cost Land A 97,000 10.00% 88,250 Building A 873,000 90.00% 794,250 970,000 882,500 Estimated Life in Years of Building A = (679800-40600) / 13600 = 47 years Value of Land B Common Stock - Fair Value (3,700 Shares X $32) 118,400 Demolition Cost 11,100 Total Cost 129,500 Donated Equipment Depreciation Rate under Straight Line Method = 10% Depreciation Rate under 150% Declining Methos = 150% X 10% = 15% 2017 - Dep Under Double Declining Method = $18,800 X 15% = $2,820 2018 - Dep Under Double Declining Method = ($18,800 - 2,820) X 15% = $2,397 Machine A Cost of Machine = $105,000 (Total Amt. Paid) - 12600 (Normal repairs) = $92,400 2017 - dep as per Sum of Digit method = ($92400 - $5,500) x 10/55 = 15,800 2018 - dep as per Sum of Digit method = ($92,400 - $5,500) x 9/55 X 4/12 = 4,740 Machine B Cost of Machine B = PV of Installment Paid = $4,700 X 7.4177 = $34,862.99 or say $34,863 Dep. Under straight Line Method = 34,863 / 15 years = $2,324.20 or $2,324 (Approx.)