Problem 11-10 Skysong Corporation, a manufacturer of steel products, began opera

Question

Problem 11-10

Skysong Corporation, a manufacturer of steel products, began operations on October 1, 2016. The accounting department of Skysong 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.

Present value
of $1.00 at 8%

Present value
of an ordinary annuity
of $1.00 at 8%

Complete the schedule below. (Round answers to 0 decimal places, e.g. 45,892.)

SKYSONG CORPORATION

Fixed-Asset and Depreciation Schedule

For Fiscal Years Ended September 30, 2017, and September 30, 2018

Depreciation

Year Ended

Expense

September 30

4._______

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. Skysong paid $844,000 for the land and building together. At the time of acquisition, the land had an appraised value of $86,100, and the building had an appraised value of $774,900. 3. Land B was acquired on October 2, 2016, in exchange for 2,600 newly issued shares of Skysong’s common stock. At the date of acquisition, the stock had a par value of $5 per share and a fair value of $28 per share. During October 2016, Skysong paid $15,300 to demolish an existing building on this land so it could construct a new building. 4. Construction of Building B on the newly acquired land began on October 1, 2017. By September 30, 2018, Skysong had paid $307,000 of the estimated total construction costs of $428,900. It is estimated that the building will be completed and occupied by July 2019. 5. Certain equipment was donated to the corporation by a local university. An independent appraisal of the equipment when donated placed the fair value at $38,900 and the salvage value at $2,700. 6. Machinery A’s total cost of $181,800 includes installation expense of $540 and normal repairs and maintenance of $14,400. Salvage value is estimated at $6,500. Machinery A was sold on February 1, 2018. 7. On October 1, 2017, Machinery B was acquired with a down payment of $5,280 and the remaining payments to be made in 11 annual installments of $5,540 each beginning October 1, 2017. The prevailing interest rate was 8%. The following data were abstracted from present value tables (rounded).

Explanation / Answer

Depreciation Expense Year Ended 30-Sep 757900 Assets Acquistion Date Cost Salvage Salavage Deprectiaion Method Estimated Life in Years 2017 2018 Land A 1-Oct-16 1.$86100 N/A N/A N/A N/A N/A Building A 1-Oct-16 2.$774900 $43,400 Straight-line 50 $14,616 4.$10962 Land B 2-Oct-16 5.$88100 N/A N/A N/A N/A N/A Building B Under Construction $307000 to date _ Straight-line 30 $0 6.$0 Donated Equipment 2-Oct-16 7.$38900 2,700 150 % declining-balance 10 8.$5616 9,$3580 Machinery A 2-Oct-16 10.$167400 6,500 Sum-of-the-years'-digits 8 11.$31286 12.$2235 Machinery B 1-Oct-17 13.47993 $0 Straight-line 20 $600 14.$1800 Cost of Building A $                774,900 Depreciation of Building A in 2017 $14,616 Life of Building A in years                               50 (774900-43400)/14616 Expense Septer 30, 2018 10962 (14616*(9/12) Cost acquisition of Land B $                  72,800 ($28*26000 Cost of demolition of existing building $15,300 Capital cost of the land B $                  88,100 (72800+15300) There is no depreciation of Building B Depreciation will start only after completion and being put to use of asset Donated Equipment: Life of Equipment in years 10 Straight line rate =(1/10) 10% Rate for 150% declining balance 15% (1.5*10) Cost of Donated equipment $38,900 Depreciation in Year 2016 $                     1,459 38900*0.15*(3/12) Book value at end of year 2016 $37,441 (38900-1459) Depreciation in Year 2017 $5,616 (37441*0.15) Book value at end of year 2017 $31,825 (37441-5616) Depreciation in Year 2018 till Sep 30 $                     3,580 (31825*0.15*(9/12) MACHINERY A Normal Repair and maintenance costs are expensesd and not depreciated Cost of machinery A $181,800 Less:Normal Repair and maintenance $14,400 Depreciable asset $167,400 (181800-14400) Salvage value $6,500 Amount to be expensed over useful life $160,900 (167400-6500) Useful Life in Years                                 8 SUM OF DIGITS=1+2+3+4+5+6+7+8= 36 Depreciation in year 1=(8/36)*160900 $35,756 Depreciation in 2016 $8,938.89 (3/12)*35756 Depreciation in 2017 $31,286 (7/36)*160900) Depreciation in 2018 $26,817 (6/36)*160900 Since it is sold on Feb 1, Depreciation Sep 30,2018 $2,235 (26817/12) COST OF MACHINERY B Down Payment $5,280 October 1 Instalment $5,540 Present value of remaining110annual instalment at 8% $                  37,173 (6.71*5540) Total Cost of equipment on October 1 , 2017 $47,993 Annual Depreciation=47993/20 $2,400 2017 Depreciation=(3/12)*2400 $600 Depreciation till Sep30,2018=(9/12)*2400 $1,800

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