At December 31, 2015, Cord Company\'s plant asset and accumulated depreciation a
ID: 2468015 • Letter: A
Question
At December 31, 2015, Cord Company's plant asset and accumulated depreciation and amortization accounts had balances as follows:
Depreciation is computed to the nearest month and residual values are immaterial. Transactions during 2016 and other information:
On January 6, 2016, a plant facility consisting of land and building was acquired from King Corp. in exchange for 16,000 shares of Cord's common stock. On this date, Cord's stock had a fair value of $60 a share. Current assessed values of land and building for property tax purposes are $198,000 and $462,000, respectively.
On March 25, 2016, new parking lots, streets, and sidewalks at the acquired plant facility were completed at a total cost of $138,000. These expenditures had an estimated useful life of 12 years.
The leasehold improvements were completed on December 31, 2012, and had an estimated useful life of eight years. The related lease, which would terminate on December 31, 2018, was renewable for an additional four-year term. On April 29, 2016, Cord exercised the renewal option.
On July 1, 2016, machinery and equipment were purchased at a total invoice cost of $316,000. Additional costs of $11,000 for delivery and $41,000 for installation were incurred.
On September 30, 2016, a truck with a cost of $23,100 and a book value of $7,400 on date of sale was sold for $10,600. Depreciation for the nine months ended September 30, 2016, was $1,665.
On December 20, 2016, a machine with a cost of $12,500 and a book value of $2,750 at date of disposition was scrapped without cash recovery.
Prepare a schedule analyzing the changes in each of the plant asset accounts during 2016. Do not analyze changes in accumulated depreciation and amortization.
For each asset category, prepare a schedule showing depreciation or amortization expense for the year ended December 31, 2016. (Do not round intermediate calculations.)
References
eBook & Resources
WorksheetLearning Objective: 11-02 Determine periodic depreciation using both time-based and activity-based methods.
Difficulty: 3 HardLearning Objective: 11-04 Calculate the periodic amortization of an intangible asset.
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At December 31, 2015, Cord Company's plant asset and accumulated depreciation and amortization accounts had balances as follows:
Explanation / Answer
(1) ANALYSIS OF CHANGES IN PLANT ASSETS FOR THE YEAR ENDED DECEMBER 31,2016 Balance on Balance on Category 12.31.2015 Increase Decrease 12.31.2016 Land 166,000 288,000 454,000 Buildings 1,050,000 672,000 1,722,000 Machinery & Equipment 675,000 368,000 12,500 1,030,500 Automobiles & trucks 163,000 11,600 23,100 151,500 Lease hold improvements 198,000 198,000 Land improvements 0 138,000 138,000 WORKINGS Calculation of value of land and buildings by exchange of shares Fair value of shares = 16000*60= 960000 Allocation to Land and Buildings in the ratio of 198:462, being their fair values Land 198/660 288000 0.3 Building 462/660 672000 0.7 960000 Addition to machinery is aggregate of all costs including installation Hence, 316000+11,000+41,000=368000 2) DEPRECIATION AND AMORTIZATION EXPENSE FOR THE YEAR ENDED 12.31.216 Land Improvements: Yearly Depreciation = 138,000 @ 8 1/3 % (100/12) 11500 Proportionate amortisation for the year for 9 months 8625 Buildings: Carrying amount on 12.31.2015(1050000-319900) 730100 Purchased on 1.6.2016 672000 Total amount subject to depreciation 1402100 Rate with 150% declining balance 25 years = (100/25*1.5) =6% Depreciation for the year 84126 Machinery and Equipment Depreciation on opening balance = 675000*.10 67500 Depreciation on acquisition during the year =368000 at 10% 18400 for 6 months Total for the year 85900 Automobiles and Trucks Opening carrying amount =163000-91325 71675 Less: carrying amount on truck sold =7400+1665 9065 80740 Depreciation @ 30% 24222 Automobile purchased on 30th august 2016 for 11600 Depreciation on the above for 4 months @ 30% 1160 Depreciation for automobile 25382 Lease hold improvements Carrying amount Opening 99000 Balance years upto 12.31.2022 - 7 years = 1/7th Amortisation = 1/7th 14143
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