Problem 11-3 Depreciation methods; partial periods Chapters 10 and 11 [LO11-2] T
ID: 2601226 • Letter: P
Question
Problem 11-3 Depreciation methods; partial periods Chapters 10 and 11 [LO11-2]
The plant asset and accumulated depreciation accounts of Pell Corporation had the following balances at December 31, 2017:
Transactions during 2018 were as follows:
On January 2, 2018, machinery and equipment were purchased at a total invoice cost of $275,000, which included a $5,800 charge for freight. Installation costs of $30,000 were incurred.
On March 31, 2018, a small storage building was donated to the company. The person donating the building originally purchased it three years ago for $28,000. The fair value of the building on the day of the donation was $18,200.
On May 1, 2018, expenditures of $53,000 were made to repave parking lots at Pell's plant location. The work was necessitated by damage caused by severe winter weather.
On November 1, 2018, Pell acquired a tract of land with an existing building in exchange for 10,000 shares of Pell’s common stock that had a market price of $41 per share. Pell paid legal fees and title insurance totaling $24,500. Shortly after acquisition, the building was razed at a cost of $38,000 in anticipation of new building construction in 2019.
On December 31, 2018, Pell purchased a small storage building by giving $16,000 cash and an old automobile purchased for $19,500 on January 1, 2017. Depreciation on the old automobile recorded through December 31, 2018, totaled $14,625. The fair value of the old automobile was $3,900.
Required:
For each asset classification, prepare a schedule showing depreciation for the year ended December 31, 2018, using the following depreciation methods and useful lives:
Land improvements—Straight line; 15 years.
Building—150% declining balance; 20 years.
Machinery and equipment—Straight line; 10 years.
Automobiles—150% declining balance; 3 years.
Depreciation Land $ 365,000 $ 0 Land improvements 184,500 48,000 Building 1,530,000 365,000 Machinery and equipment 1,188,000 420,000 Automobiles 153,000 113,500
Explanation / Answer
PELL CORPORATION
Depreciation Expense
For the Year Ended December 31, 2018
Land improvements:
Cost $ 184,500
Straight-line rate (1 ÷ 15 years) x 6 2/3% $ 12,300
Building:
Book value 12/31/17 ($1,530,000 – 365,000) $1,165,000
150% declining balance rate:
(1 ÷ 20 years = 5% x 1.5) x 7.5% $ 87,375
Machinery and Equipment:
Balance, 12/31/17 $1,188,000
Deduct machine sold (28,000) $1,160,000
Straight-line rate (1 ÷ 10 years) x 10% 116,000
Purchased 1/2/18 305,000
Depreciation x 10% 30,500
Machine sold 3/31/18 28,000
Depreciation for three months x 2.5% 700
Total depreciation on machinery and equipment $147,200
Automobiles:
Book value on 12/31/17 ($153,000 – 113,500) $39,500
150% declining balance rate:
(1 ÷ 3 years = 33.333% x 1.5) x 50% $ 19,750
Total depreciation expense for 2018 $266,625