Depreciation is computed to the nearest month and residual values are immaterial

Question

     Depreciation is computed to the nearest month and residual values are immaterial. Transactions during 2013 and other information:

On January 6, 2013, a plant facility consisting of land and building was acquired from King Corp. in exchange for 32,000 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 $246,000 and $574,000, respectively.

On March 25, 2013, new parking lots, streets, and sidewalks at the acquired plant facility were completed at a total cost of $234,000. These expenditures had an estimated useful life of 12 years.

The leasehold improvements were completed on December 31, 2009, and had an estimated useful life of eight years. The related lease, which would terminate on December 31, 2015, was renewable for an additional four-year term. On April 29, 2013, Cord exercised the renewal option.

On July 1, 2013, machinery and equipment were purchased at a total invoice cost of $332,000. Additional costs of $11,000 for delivery and $57,000 for installation were incurred.

On September 30, 2013, a truck with a cost of $24,700 and a carrying amount of $10,400 on date of sale was sold for $12,200. Depreciation for the nine months ended September 30, 2013, was $2,340.

On December 20, 2013, a machine with a cost of $20,500 and a book value of $3,150 at date of disposition was scrapped without cash recovery.

Prepare a schedule analyzing the changes in each of the plant asset accounts during 2013. 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, 2013. (Do not round intermediate calculations.)

At December 31, 2012, Cord Company's plant asset and accumulated depreciation and amortization accounts had balances as follows:

Explanation / Answer

1. Land - Purchase price of land and building acquired from King Corp = no. of shares*share's fair value

= 32,000*60 = $1,920,000. Thus the value of land and building will increase by $1,920,000 in 2013. Balance at the end of 2013 = 182,000+1,850,000 (opening balances)+1,920,000 (for 2013) = $3,952,000

2. New parking lots, streets and sidewalks are part of land improvements. So, the amount of $234,000 expended for the sidewalks and parking lots will be added in the head - "land improvements". Balance at the end of 2013 = 0(old balance)+234,000 (for 2013) = $234,000

3. The leasehold improvement was renewed in 2013. This means that a new amount of $230,000 will added under this head. Balance at the end of 2013 for "leasehold improvement" will be the old amount of $230,000+the new renewal amount of $230,000 = $460,000

4. The cost of delivery and installation will be added to the cost of machine. So the effective cost of machine = 332,000+11,000+57,000 = $400,000

Balance at the end of 2013 = opening balance+amount for 2013-sold in 2013 = 1,475,000+400,000-20,500 = $1,854,500

5. Balance in automobiles and trucks at the end of 2013 = opening balance+purchased in 2013-sold in 2013

= 179,000+13,200-24,700 = $167,500

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