The Thompson Corporation, a manufacturer of steel products, began operations on

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 $722,500 for the land and building together. At the time of acquisition, the land had a fair value of $81,000 and the building had a fair value of $729,000.

Land B was acquired on October 2, 2016, in exchange for 2,100 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 $16 per share. During October 2016, Thompson paid $9,500 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 $120,000 of the estimated total construction costs of $210,000. 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 $12,400 and the residual value at $1,100.

Machine A’s total cost of $101,000 includes installation charges of $460 and normal repairs and maintenance of $10,100. Residual value is estimated at $4,500. Machine A was sold on February 1, 2018.

On October 1, 2017, Machine B was acquired with a down payment of $3,100 and the remaining payments to be made in 10 annual installments of $3,100 each beginning October 1, 2018. The prevailing interest rate was 9%.

THOMPSON CORPORATION Fixed Asset and Depreciation Schedule For Fiscal Years Ended September 30, 2017, and September 30, 2018 Acquisition Date Depreciation Method Depreciation for Estimated Year Ended 9/30 Assets Cost Residual Life in Years 2017 2018 Land A Building A Land B Building B Donated Equipment 10/2/16 Machine A Machine B NIA 46 NIA 30 10 NIA 650,250 $47,650 NIA 10/1/16 10/1/16 10/2/16 Under construction 120,000 to date NIA SL NIA SL 1,100| 150% Declining balance -digits SL 72,250 NIA NIA 13,100 $13,100 NIA 43,100 NIA 1,581 12,400| 90,900 22,995 1,860 10/2/16 4,500 S um-of-the years 15 1,533

Explanation / Answer

Thompson Corporation

Fixed Asset and Depreciation Schedule

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

Machine A: Depreciable Amount = $ ( 90,900 - 4,500) = $ 86,400.

Sum of the years digits = 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 = 45.

Depreciation for the year ended 9/30/2017 = $ 86,400 x 9/45 = $ 17,280.

Depreciation for the 4 month period ended 1/31/2018 = $ 86,400 x 8/45 x 4/12 = $ 5,120.

Assets Acquisition Date Cost Residual Value Depreciation Method Estimated Life in Years Depreciation for Year Ended 9/30/2017 Depreciation for Year Ended 9/30/2018 Land A 10/1/16 $ 72,250 N/A N/A N/A N/A N/A Building A 10/1/16 650,250 47,650 SL 46 13,100 13,100 Land B 10/2/16 43,100 N/A N/A N/A N/A N/A Building B Under Construction 120,000 to date - SL 30 - - Donated Equipment 10/2/16 12,400 1,100 150% Declining Balance 10 1,860 1,581 Machine A 10/2/16 90,900 4,500 Sum-of the years'-digits 9 17,280 5,120 Machine B 10/1/17 22,995 - SL 15 - 1,533

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