Concept explainers
1.
Prepare a schedule that analyzes each of the plant assets of Company P during 2016.
1.
Explanation of Solution
Property, Plant, and Equipment:
Property, Plant, and Equipment refers to the fixed assets, having a useful life of more than a year that is acquired by a company to be used in its business activities, for generating revenue.
Prepare a schedule that analyzes each of the plant assets of Company P during 2016 as follows:
Corporation P | ||||
Analysis of Changes in Plant Assets | ||||
For the Year Ended December 31, 2016 | ||||
Particulars | Balance as on December 31, 2015 | Increase | Decrease | Balance as on December 31, 2016 |
Land | $350,000 | $438,000 (1) | - | $788,000 |
Land improvements | 180,000 | - | - | 180,000 |
Building | 1,500,000 | - | - | 1,500,000 |
Machinery and equipment | 1,158,000 | 287,000 (2) | 58,000 | 1,387,000 |
Automobiles | 150,000 | 19,000 (3) | 18,000 | 151,000 |
Totals | $3,338,000 | $744,000 | $76,000 | $4,006,000 |
Table (1)
Working note (1):
Compute the cost of land acquired:
Particulars | Amount ($) |
Stock exchanged | $380,000 |
Legal fees and title insurance | 23,000 |
Razing existing building | 35,000 |
Cost of land acquired | 438,000 |
Table (2)
Note:
10,000 shares which had a market price of $38 were exchanged
Working note (2):
Compute the cost of machinery and equipment:
Particulars | Amount ($) |
Invoice cost | $260,000 |
Installation cost | 27,000 |
Cost of Machinery | 287,000 |
Table (3)
Working note (3):
1. Compute the
Useful life = 2 years
2. Calculate the carrying cost of trade –in:
3. Compute the cost of new automobiles:
Particulars | Amount ($) |
Carrying amount of trade-in | $4,500 |
Add: Cash paid | 15,250 |
Sub total | 19,750 |
Less: Loss on trade-in | 750 |
Cost recorded for new automobile | 19,000 |
Table (4)
2.
Prepare a schedule screening the depreciation expense for each asset of Company P for the year ended December 31, 2016.
2.
Explanation of Solution
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.
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.
Prepare a schedule screening the depreciation expense for each asset of Company P for the year ended December 31, 2016 as follows:
Depreciation and amortization expense:
Company B | |
Depreciation and amortization expense | |
For the year ended December 31, 2016 | |
Particulars | $ |
Depreciation expense for Land improvement (5) | $12,000 |
Depreciation expense for building (7) | $86,250 |
Depreciation expense for equipment and machinery (11) | $140,150 |
Depreciation expense for automotive equipment (10) | $19,000 |
Total depreciation and amortization expense for 2016 | $257,400 |
Table (5)
Working note (4):
Compute the straight line rate:
Useful life = 15 years
Working note (5):
Calculate the depreciation expense of Land improvement:
Working note (6):
Compute the depreciation rate under 150% balance method:
Useful life = 20 years
Working note (7):
Calculate the depreciation expense of building under 150%-declining balance method.
Working note (8):
Calculate the depreciation expense of remaining machinery under
Working note (9):
Calculate the depreciation expense for machine purchased on January 2, 2016 under straight line method.
Working note (10):
Calculate the depreciation expense for machinery sold under straight line method.
Working note (11):
Calculate the total depreciation expense for machinery for 2016.
Working note (12):
Compute the depreciation rate under 150% balance method:
Useful life = 3 years
Working note (13):
Calculate the depreciation expense of automobiles under 150%-declining balance method.
3.
Prepare a schedule screening the gain or loss from disposal of assets of Company P that would appear on the income statement for the year ended December 31, 2016.
3.
Explanation of Solution
Prepare a schedule screening the gain or loss from disposal of assets of Company B that would appear on the income statement for the year ended December 31, 2016 as follows:
Company B | ||
Gain or loss from disposal of assets | ||
For the year ended December 31, 2016 | ||
Particulars | Amount | Amount |
Gain on sale of machinery: | ||
Selling price | $36,500 | |
Less: Carrying value of machinery sold (15) | $33,350 | $3,150 |
Less: Loss from trade-in: | ||
Carrying amount of trade-in | 4,500 | |
Less: Trade in allowed | $3,750 | 750 |
Net gain on asset disposal for 2016 | $2,400 |
Table (6)
Working note (14):
Calculate the accumulated depreciation for machine sold.
Working note (15):
Calculate the carrying cost of machinery sold:
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Chapter 11 Solutions
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