P11-10 (L01) GROUPWORK (Compr steel products, began operations on October 1, 20
ID: 2587642 • Letter: P
Question
P11-10 (L01) GROUPWORK (Compr steel products, began operations on October 1, 20 Computations) Kohlbeck Corporation, a manufacturer of operations on Dltober 1,2016. The acounting department of Kohlbeck has starterà the fined asset and depreciation schedule presented on page 595. You have been asked to assist in completing this schedule. In addition to ascer- taining that the data already on the schedule are correct, you have obtained the following information from the company's records and personnel. 1. Depreciation is computed from the first of the month of acquisition to the first of the month of disposition. 2. Land A and Building A were acquired from a predecessor corporation. Kohlbeck paid $800,000 for the land and building together. At the time of acquisition, the land had an appraised value of $90,000, and the building had an appraised value of $810,000. 3. Land B was acquired on October 2, 2016, in exchange for 2,500 newly issued shares of Kohlbeck's common stock. At the date of acquisition, the stock had a par value of $5 per share and a fair value of $30 per share. During October 2016, Kohl- beck paid $16,000 to demolish an existing building on this land so it could construct a new building. occupied by July 2019. donated placed the fair value at $40,000 and the salvage value at $3,000. Salvage value is estimated at S6,000. Machinery A was sold on February 1, 2018. were abstracted from present value tables (rounded) . Construction of Building B on the newly acquired land began on October 1, 2017. By September 30, 2018, Kohlbeck had paid $320,000 of the estimated total construction costs of $450,000. It is estimated that the building will be completed and 5. Certain equipment was donated to the corporation by a local university An independent appraisal of the equipment when 6. Machinery A's total cost of $182,900 includes installation expense of $600 and normal repairs and maintenance of $14,900. in 11 annual installments of S6 000 each beginning October 1, 2017. The prevailing interest rate was 8%. The following data Present Value of $1.00 at 8% Present Value of an Ordinary Annuity of S1.00 at 8% 10 years 1l years ears 163 10 years 11 years 6.710 7.139 315Explanation / Answer
We will divide the amount of Land and Building paid to predecessor corporation
between Land and Building on the basis of Appraised value at the time of acquisition
Land A appraised value is $ 90000 out of total appraised value of $900000
So, we can assign 10% (90000/900000) of total cost $800000 to the Land A
and 90% of the total cost to Building A
1. Cost of Land A = 10% of $800000
= $80000
2. Cost of Building A = 90% of $800000
= $720000
3. Estimated Life in years for Building A
Suppose Estimated life is x
Straight line depreciation =(Cost - Salvage value)/number of years
Depreciation expense for year ended 30 September 2017 is $13600
13600= (720000-40000)/x
x = 680000/13600
x = 50
Estimated Life in years for Building A is 50
4. Depreciation expense for year ended 30 September 2018 is $13600
Under Straight line Method Depreciation expense remain same over the life of the asset
5. Cost of Land B
Land B was aquired for 2500 shares at a fair value of $ 30 each
Thus the cost of land B = 2500 shares x $ 30 + Cost of improvement
=$75000 + $16000
= $91000
6. Depreciation expense for Building B for year ended 30 September 2018
= Cost-Salvage Value/number of years
= $320000/30
= $10667
7. Cost of Donated Equipment = $40000
Donated fixed assets are to be recorded at the fair market value
8. Depreciation for Donated Equipment for year ended 30 September 2017
Under 150% declining balance Depreciation rate = 150% / number of years
= 150% / 10
= 15%
Depreciation expense = ($40000-$3000)*15%
= $5550
9. Depreciation for Donated Equipment for year ended 30 September 2018
= ($40000-$3000-$5550)*15%
= $4717.50
10. Cost of Machinery A = $182900 - Normal repairs and maintenance
= $182900 -$14900
= $168000
11. Depreciation expense for Machinery A for year ended 30 September 2017
Sum of the year's digit = 8(8+1)/2
= 36
Applicable percentage = Number of years of estimated life remaining at the beginning of the year /SYD
= 8/36
= 22.22%
Depreciation expense = Cost of Machinery - Salvage value * 22.22%
= ($168000 - $ 6000) *22.22%
= $36000
12. Depreciation expense for Machinery A for year ended 30 September 2018
Applicable percentage = Number of years of estimated life remaining at the beginning of the year /SYD
= 7/36
= 19.44%
Depreciation expense = Cost of Machinery - Salvage value * 19.44%
= ($168000 - $ 6000) *19.44%
= $31500
Now the machinery was sold in February 1, 2018
so the depreciation for 5 months will be 31500/12*5
= $13125
13. Cost of Machinery B = Down Payment + Present value of installments
Present value of installment = Annual installment * Present value of annuity at a given rate of interest
= $5740 + $42834
= $48574
14. Depreciation expenses for Machinery B for year ended Septenber 30,2018
= $48574/20
= $2429
We will divide the amount of Land and Building paid to predecessor corporation
between Land and Building on the basis of Appraised value at the time of acquisition
Land A appraised value is $ 90000 out of total appraised value of $900000
So, we can assign 10% (90000/900000) of total cost $800000 to the Land A
and 90% of the total cost to Building A
1. Cost of Land A = 10% of $800000
= $80000
2. Cost of Building A = 90% of $800000
= $720000
3. Estimated Life in years for Building A
Suppose Estimated life is x
Straight line depreciation =(Cost - Salvage value)/number of years
Depreciation expense for year ended 30 September 2017 is $13600
13600= (720000-40000)/x
x = 680000/13600
x = 50
Estimated Life in years for Building A is 50
4. Depreciation expense for year ended 30 September 2018 is $13600
Under Straight line Method Depreciation expense remain same over the life of the asset
5. Cost of Land B
Land B was aquired for 2500 shares at a fair value of $ 30 each
Thus the cost of land B = 2500 shares x $ 30 + Cost of improvement
=$75000 + $16000
= $91000
6. Depreciation expense for Building B for year ended 30 September 2018
= Cost-Salvage Value/number of years
= $320000/30
= $10667
7. Cost of Donated Equipment = $40000
Donated fixed assets are to be recorded at the fair market value
8. Depreciation for Donated Equipment for year ended 30 September 2017
Under 150% declining balance Depreciation rate = 150% / number of years
= 150% / 10
= 15%
Depreciation expense = ($40000-$3000)*15%
= $5550
9. Depreciation for Donated Equipment for year ended 30 September 2018
= ($40000-$3000-$5550)*15%
= $4717.50
10. Cost of Machinery A = $182900 - Normal repairs and maintenance
= $182900 -$14900
= $168000
11. Depreciation expense for Machinery A for year ended 30 September 2017
Sum of the year's digit = 8(8+1)/2
= 36
Applicable percentage = Number of years of estimated life remaining at the beginning of the year /SYD
= 8/36
= 22.22%
Depreciation expense = Cost of Machinery - Salvage value * 22.22%
= ($168000 - $ 6000) *22.22%
= $36000
12. Depreciation expense for Machinery A for year ended 30 September 2018
Applicable percentage = Number of years of estimated life remaining at the beginning of the year /SYD
= 7/36
= 19.44%
Depreciation expense = Cost of Machinery - Salvage value * 19.44%
= ($168000 - $ 6000) *19.44%
= $31500
Now the machinery was sold in February 1, 2018
so the depreciation for 5 months will be 31500/12*5
= $13125
13. Cost of Machinery B = Down Payment + Present value of installments
Present value of installment = Annual installment * Present value of annuity at a given rate of interest
= $5740 + $42834
= $48574
14. Depreciation expenses for Machinery B for year ended Septenber 30,2018
= $48574/20
= $2429
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