At December 31, 2017, Cord Company\'s plant asset and accumulated depreciation a
ID: 2540159 • Letter: A
Question
At December 31, 2017, Cord Company's plant asset and accumulated depreciation and amortization accounts had balances as follows:
Depreciation methods and useful lives:
Buildings—150% declining balance; 25 years.
Machinery and equipment—Straight line; 10 years.
Automobiles and trucks—150% declining balance; 5 years, all acquired after 2014.
Leasehold improvements—Straight line.
Land improvements—Straight line.
Depreciation is computed to the nearest month and residual values are immaterial. Transactions during 2018 and other information:
On January 6, 2018, a plant facility consisting of land and building was acquired from King Corp. in exchange for 20,000 shares of Cord's common stock. On this date, Cord's stock had a fair value of $50 a share. Current assessed values of land and building for property tax purposes are $175,000 and $525,000, respectively.
On March 25, 2018, new parking lots, streets, and sidewalks at the acquired plant facility were completed at a total cost of $162,000. These expenditures had an estimated useful life of 12 years.
The leasehold improvements were completed on December 31, 2014, and had an estimated useful life of eight years. The related lease, which would terminate on December 31, 2020, was renewable for an additional four-year term. On April 30, 2018, Cord exercised the renewal option.
On July 1, 2018, machinery and equipment were purchased at a total invoice cost of $320,000. Additional costs of $10,000 for delivery and $45,000 for installation were incurred.
On August 30, 2018, Cord purchased a new automobile for $12,000.
On September 30, 2018, a truck with a cost of $23,500 and a book value of $8,200 on date of sale was sold for $11,000. Depreciation for the nine months ended September 30, 2018, was $1,845.
On December 20, 2018, a machine with a cost of $14,500 and a book value of $2,850 at date of disposition was scrapped without cash recovery.
Required:
1. Prepare a schedule analyzing the changes in each of the plant asset accounts during 2018. Do not analyze changes in accumulated depreciation and amortization.
2. For each asset category, prepare a schedule showing depreciation or amortization expense for the year ended December 31, 2018.
and Amortization Land $ 170,000 $ — Buildings 1,250,000 323,900 Machinery and equipment 875,000 312,500 Automobiles and trucks 167,000 95,325 Leasehold improvements 206,000 103,000 Land improvements — —
Explanation / Answer
Change of Fixed Assets during the year ended on 31.12.2018 Particulars Opening Balance (excluding accumulated depreciation) Additions Sale of Fixed Assets Month of Additions Month of Deletion Depreciation Method Useful life Depreciation for the year Depreciation Calculation Closing Balance Land 170000 175000 Jan - 345000 Buildings 926100 525000 Jan 150% decling method 25 years 87066 (926100+52500)*6% 1364034 Machinery & equipment 562500 375000 2850 July Dec straight line method 10 years 106250 875000/10+375000/10*6/12 834100 Automobiles & Trucks 71675 12000 8200 Sept Sept 150% decling method 5 years 23288 {(71675-8200)+(12000*8/12)}*30%+1845 68588 Leasehold Improvement 103000 straight line method (5 years) 5 years 24524 11444+13079 (see note) 78476 Land Improvements 0 162000 April straight line method 12 years 10125 162000/10*9/12 151875 Note Leasehold Improvements Remaining useful life as on May 2018 4 years 8 months Book Value on Jan 2018 103000 Depreciation for Jan to April 11444 Book Value on May 2018 91556 e revised Depreciation as per SLM for May to Dec 13079 Closing Balance 78476 (Since improvements completed on dec 2014 and the depriciation provided till dec 2017 is exactly half of the cost, the useful life is 6 years, which revised to 8 years as on 30th April 2018 due to exercise of renewal option) 150% Declining Balance method 1. 150%/useful life 2. multiply outcome of 1 with balance Amortization Expenses No. of share alloted 20000 Fair Value of each share 50 Total consideration paid 1000000 Land Fair Value 175000 Building Fair Value 525000 Excess over Fair value of assets 300000 Excess relating to land to be amortized only of sale of land 75000 Excess relating to Building to be amortized over useful life 225000 (150% decling Balance method) Amortization expenses for current year 13500 (225000*150%/25years)
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