Logan Corporation, a manufacturer of steel products, began operations on October 1, 2018.
You have been asked to complete this schedule. In addition to determining that the data already on the schedule are correct, you have obtained the following information from Logan’s records and personnel:
Required:
For each numbered blank in the schedule, supply the correct amount. Round each answer to the nearest dollar. Show supporting computations in good form.
Calculate the missing amount of Company L.
Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolesces.
Straight-line depreciation method: The depreciation method which assumes that the consumption of economic benefits of long-term asset could be distributed equally throughout the useful life of the asset is referred to as straight-line method.
Sum-of- the-years’ digits method: Sum-of-the years’ digits method determines the depreciation by multiplying the depreciable base and declining fraction.
Double-declining-balance method: The depreciation method which assumes that the consumption of economic benefits of long-term asset is high in the early years but gradually declines towards the end of its useful life, is referred to as double-declining-balance method.
Calculate the missing amount of Company L as follows:
Figure (1)
Working note (1):
Step 1: Calculate the proportion of the Land A and Building A.
Particulars | Appraisal value (A) | Total appraisal value (B) |
Proportion |
Land A | $72,000 | $900,000 | 8.00% |
Building A | $828,000 | 9,00,000 | 92.00% |
Total | $900,000 | 100.00% |
Step 2: Calculate the cost of land A.
Working note (2):
Calculate the cost of Building A.
Working note (3):
Calculate the estimated useful life of building A.
Working note (4):
Calculate the depreciation expense of Building A for 2020.
In this case, company L uses straight line method for building A, and hence it would have same depreciation expense for its all useful life. So, the depreciation expense for 2020 is $14,000 (given) as same as the prior year (2019).
Working note (5):
Calculate the cost of Land B.
Working note (6):
In this case, there is no depreciation expense of Building B for 2020, because building is not yet constructed fully (under construction).
Working note (7):
The fair value donated equipment is considered as the cost of equipment. Hence, the cost of donated equipment is $16,000 (given).
Working note (8):
Step 1: Compute the straight line rate.
Useful life = 10 years
Step 2: Calculate the depreciation expense of donated equipment for 2019.
Working note (9):
Calculate the depreciation expense of donated equipment for 2020
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