Question

The plant asset and accumulated depreciation accounts of Pell Corporation had the following balances at December 31, 2020:

	Plant Asset				Accumulated Depreciation
Land	$	370,000			$	0
Land improvements		186,000				49,000
Building		1,540,000				370,000
Equipment		1,198,000				425,000
Automobiles		154,000				114,000

Transactions during 2021 were as follows:

1. On January 2, 2021, equipment were purchased at a total invoice cost of $280,000, which included a $5,900 charge for freight. Installation costs of $31,000 were incurred.
2. On March 31, 2021, a small storage building was donated to the company. The person donating the building originally purchased it three years ago for $29,000. The fair value of the building on the day of the donation was $19,000.
3. On May 1, 2021, expenditures of $54,000 were made to repave parking lots at Pell's plant location. The work was necessitated by damage caused by severe winter weather. The repair doesn't provide future benefits beyond those originally anticipated.
4. On November 1, 2021, Pell acquired a tract of land with an existing building in exchange for 10,000 shares of Pell’s common stock that had a market price of $42 per share. Pell paid legal fees and title insurance totaling $25,000. Shortly after acquisition, the building was razed at a cost of $39,000 in anticipation of new building construction in 2022.
5. On December 31, 2021, Pell purchased a small storage building by giving $16,250 cash and an old automobile purchased for $20,000 in 2014. Depreciation on the old automobile recorded through December 31, 2021, totaled $15,000. The fair value of the old automobile was $3,950.

Required:

For each asset classification, prepare a schedule showing depreciation for the year ended December 31, 2021, using the following depreciation methods and useful lives:

Land improvements—Straight line; 15 years.
Building—150% declining balance; 20 years.
Equipment—Straight line; 10 years.
Automobiles—Units-of-production; $0.50 per mile

Depreciation is computed to the nearest month and no residual values are used. Automobiles were driven 40,000 miles in 2021. (Do not round intermediate calculations and round your final answers to 2 decimal places.)

Answer 1

		Analysis of changes in plant assets
			Balance			Balance
			12/31/2020.	Increase	Decrease	12/31/2021.
Land			370000	484000		854000
				(Refer d.)
Land improvements			186000			186000
Buildings			1540000	39200		1579200
				(19000+20200)(Refer b & e.)
Equipment			1198000	311000		1509000
				(280000+31000) (Refer a.)
Automobiles			154000		20000	134000
					(Refer e.)
Totals			3448000	834200	20000	4262200
Notes:
a) Freight charges and installation cost will be added to the value of the asset
b) Record value of building at fair value on the day of donation ($ 19000)
c) repaving parking lot need not be capitalized.It has to be expensed
d) Value of land=Total market price of common stock+Insurance cost+Cost of demolishing the building=(10000*42)+25000+39000=$ 484000
e) Value of storage building=Cash paid+Fair value of old automobile=16250+3950=$ 20200
Original cost of old automobile ($ 18000) has to be deducted
		Schedule showing depreciation
Land:
It is a non-depreciable asset.
Depreciation=0.
Land improvements:
Balance at the end of year=$ 186000
Additions during the year=0
Useful life=15 years
Depreciation=186000/15=$ 12400
Building:
Depreciation rate under double declining balance method=1.5*(1/Useful life)=1.5*(1/20)=1.5*0.05=0.075=7.5%
Depreciation on					$
Beginning book value (1540000-370000)				1170000*7.5%	87750
On addition
on Mar 31,2021		For 9 months		(19000*7.5%*9/12)	1068.75
On addition
on Dec 31,2021		For 0 months			0
Total					88818.75
Equipment:
Useful life=10 years
Depreciation on
on Jan 1,2021					$
Additions		For 12 months		(311000/10)	31100
Depreciation on original cost (For 12 months)				(1198000/10)	119800
Total					150900
Automobiles:
Depreciation expense=Actual miles driven*Depreciation expense per mile=40000*0.50=$ 20000