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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Pell Corporation’s Property, Plant, and Equipment and Accumulated Depreciation accounts had the following balances at December 31, 2018:

Chapter 11, Problem 20P, Pell Corporations Property, Plant, and Equipment and Accumulated Depreciation accounts had the

Depreciation method and useful lives:

  • Land improvements: Straight-line; 15 years.
  • Building: 150%-declining-balance; 20 years.
  • Machinery and equipment: Straight-line; 10 years.
  • Automobiles: 150%-declining-balance; 3 years.
  • Depreciation is computed to the nearest month. No salvage values are recognized.

Transactions during 2019:

  1. 1. On January 2, 2019, machinery and equipment were purchased at a total invoice cost of $260,000, which included a $5,500 charge for freight. Installation costs of $27,000 were incurred.
  2. 2. On March 31, 2019, a machine purchased for $58,000 on January 3, 2015, was sold for $36,500.
  3. 3. On May 1,2019, expenditures of $50,000 were made to repave parking lots at Pell’s plant location. The work was necessitated by damage caused by severe winter weather.
  4. 4. On November 2, 2019, Pell acquired a tract of land with an existing building in exchange for 10,000 shares of Pell’s $20 par common stock, which had a market price of $38 a share on this date. Pell paid legal fees and title insurance totaling $23,000. The last property tax bill indicated assessed values of $240,000 for land and $60,000 for building. Shortly after acquisition, the building was razed at a cost of $35,000 in anticipation of new building construction in 2020.
  5. 5. On December 31, 2019, Pell purchased a new automobile for $15,250 cash and trade-in of an automobile purchased for $18,000 on January 1, 2018. The new automobile has a cash value of $19,000.

Required:

  1. 1. Prepare a schedule analyzing the changes in each of the plant assets during 2019, with detailed supporting computations. Disregard the related Accumulated Depreciation accounts.
  2. 2. For each asset classification, prepare a schedule showing depreciation expense for the year ended December 31, 2019.
  3. 3. Prepare a schedule showing the gain or loss from each asset disposal that Pell would recognize in its income statement for the year ended December 31, 2019.

1.

To determine

Prepare a schedule that analyzes each of the plant assets of Company P during 2019.

Explanation

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 2019 as follows:

Corporation P
Analysis of Changes in Plant Assets
For the Year Ended December 31, 2019
ParticularsBalance as on December 31, 2018IncreaseDecreaseBalance as on December 31, 2018
Land$350,000 $438,000 (1)$788,000
Land improvements 180,000180,000
Building1,500,0001,500,000
Machinery and equipment 1,158,000287,000 (2)58,0001,387,000
Automobiles 150,00019,000 (3)  18,000151,000
Totals$3,338,000$744,000$76,000$4,006,000

Table (1)

Working note (1):

Compute the cost of land acquired:

ParticularsAmount ($)
Stock exchanged $380,000
Legal fees and title insurance23,000
Razing existing building35,000
Cost of land acquired438,000

Table (2)

Note:

10,000 shares which had a market price of $38 were exchanged ($10,000×$38)

2.

To determine

Prepare a schedule screening the depreciation expense for each asset of Company P for the year ended December 31, 2019.

3.

To determine

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, 2019.

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