The Thompson Corporation, a manufacturer of steel products, began operations on
ID: 2543099 • Letter: T
Question
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 $772,500 for the land and building together. At the time of acquisition, the land had a fair value of $103,200 and the building had a fair value of $756,800.
Land B was acquired on October 2, 2016, in exchange for 2,600 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 $21 per share. During October 2016, Thompson paid $10,000 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 $170,000 of the estimated total construction costs of $260,000. 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 $14,400 and the residual value at $1,600.
Machine A’s total cost of $102,000 includes installation charges of $510 and normal repairs and maintenance of $10,600. Residual value is estimated at $5,000. Machine A was sold on February 1, 2018.
On October 1, 2017, Machine B was acquired with a down payment of $3,600 and the remaining payments to be made in 10 annual installments of $3,600 each beginning October 1, 2018. The prevailing interest rate was 7%.
Required:
Supply the correct amount for each answer box on the schedule. (Round your final answers to nearest whole dollar.)
Explanation / Answer
Assests Acquisition Date Cost Residual Depreciation Method Estimated life in years 2017 2018 Land A 1-Oct-16 92,700 N/A N/A N/A N/A N/A Building A 1-Oct-16 679,800 40,600 SL 47 13,600 13,600 Land B 2-Oct-16 64,600 N/A N/A N/A N/A N/A Building B Under Construc. 170,000 - SL 30 No Dep. Before Use No Dep. Before Use Donated Equip 2-Oct-16 14,400 1,600 150% Declining 10 2,160 1,836 Machine A 2-Oct-16 91,400 5,000 Sum of Digits 9 17,280 5,120 Machine B 1-Oct-17 28,885 SL 16 1,805 1,805 Allocation of cost in proportion to appraised value at date of exchange: Fair Value % of Total Allocation of Cost Land A 103,200 12% 92,700 Building A 756,800 88% 679,800 860,000 772,500 Estimated Life in Years of Building A = (679800-40600) / 13600 = 47 years Value of Land B Common Stock - Fair Value 54,600 (2600 Shares X $21) Demolition Cost 10,000 Total Cost 64,600 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 = $14400 X 15% = $2160 2018 - Dep Under Double Declining Method = ($14400 - 2160) X 15% = $1836 Machine A Cost of Machine = $102,000 (Total Amt. Paid) - 10600 (Normal repairs) = $91,400 2017 - dep as per Sum of Digit method = ($91400 - $5000) x 9/45 = 17280 2018 - dep as per Sum of Digit method = ($91400 - $5000) x 8/45 X 4/12 = 5120 Machine B Cost of Machine B = PV of Installment Paid = $3600 X 8.0236 = $28884.89 or $28,885 Dep. Under straight Line Method = 28,885 / 16 years = $1,805.31 or $1,805 (Approx.)
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