The Thompson Corporation, a manufacturer of steel products, began operations on
ID: 2578766 • 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 $812,500 for the land and building together. At the time of acquisition, the land had a fair value of $72,000 and the building had a fair value of $828,000.
Land B was acquired on October 2, 2016, in exchange for 3,000 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 $25 per share. During October 2016, Thompson paid $10,400 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 $210,000 of the estimated total construction costs of $300,000. 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 $16,000 and the residual value at $2,000.
Machine A’s total cost of $110,000 includes installation charges of $550 and normal repairs and maintenance of $11,000. Residual value is estimated at $5,500. Machine A was sold on February 1, 2018.
On October 1, 2017, Machine B was acquired with a down payment of $4,000 and the remaining payments to be made in 10 annual installments of $4,000 each beginning October 1, 2018. The prevailing interest rate was 8%.
Required:
Supply the correct amount for each answer box on the schedule. (Round your final answer to nearest whole dollar.)
Explanation / Answer
THOMPSON CORPORATION
Fixed Asset and Depreciation Schedule
For Fiscal Years Ended September 30, 2017, and September 30, 2018
Assets
Acquisition Date
Cost
Residual
Depreciation Method
Estimated Life in Years
Depreciation for Year Ended 9/30
2017
2018
Land A
10-01-16
$65,000
N/A
N/A
N/A
N/A
N/A
Building A
10-01-16
$747,500
$47,500
SL
$14,000
$14,000
Land B
10-02-16
$85,400
N/A
N/A
N/A
N/A
N/A
Building B
Under construction
210,000 to date
—
SL
30
—
0
Donated Equipment
10-02-16
$16,000
2,000
150% Declining balance
10
$2,040
$1,734
Machine A
10-02-16
$99,000
5,500
Sum-of-the years’-digits
10
$15,300
$4,533
Machine B
10-01-17
$30,840
—
SL
15
—
$2,056
Working notes:
*150% Declining balance
Depreciation rate: 15%
Book Value
Depreciation
01-10-16
16,000
2,400
01-10-17
13,600
2,040
01-10-18
11,560
1,734
**Sum-of-the-years-digits
Depreciation
01-10-16
17,000
01-10-17
15,300
01-10-18
13,600
In the sum of the years digits method the depreciation in the initial years is higher.
The digits in the years of the equipment's useful life are summed: 1+2+3+4+5+6+7+8+9+10 = 55
Cost - residual = $99000 - $5500 = $93500.
Depreciation:
Year 1 $93500*10/55= 17000
Year 2 $93500*9/55= 15300
Year 3 $93500*8/55= 13600
THOMPSON CORPORATION
Fixed Asset and Depreciation Schedule
For Fiscal Years Ended September 30, 2017, and September 30, 2018
Assets
Acquisition Date
Cost
Residual
Depreciation Method
Estimated Life in Years
Depreciation for Year Ended 9/30
2017
2018
Land A
10-01-16
$65,000
N/A
N/A
N/A
N/A
N/A
Building A
10-01-16
$747,500
$47,500
SL
$14,000
$14,000
Land B
10-02-16
$85,400
N/A
N/A
N/A
N/A
N/A
Building B
Under construction
210,000 to date
—
SL
30
—
0
Donated Equipment
10-02-16
$16,000
2,000
150% Declining balance
10
$2,040
$1,734
Machine A
10-02-16
$99,000
5,500
Sum-of-the years’-digits
10
$15,300
$4,533
Machine B
10-01-17
$30,840
—
SL
15
—
$2,056
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