Question

At December 31, 2020, Cord Company's plant asset and accumulated depreciation and amortization accounts had balances as follows: Category Land Buildings Equipment Automobiles and trucks Leasehold improvements Land improvements Plant Asset $ 185,000 2,000,000 1,625,000 182,000 Accumulated Depreciation and Amortization $ - 338,900 327,500 110,325 236,000 118,000 Depreciation methods and useful lives: Buildings—150% declining balance; 25 years. Equipment-Straight line; 10 years. Automobiles and trucks-200% declining balance; 5 years, all acquired after 2017. Leasehold improvements—Straight line. Land improvements-Straight line. Depreciation is computed to the nearest month and residual values are immaterial. Transactions during 2021 and other information: a. On January 6, 2021, a plant facility consisting of land and building was acquired from King Corp. in exchange for 35,000 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 $255,000 and $595,000, respectively. b. On March 25, 2021, new parking lots, streets, and sidewalks at the acquired plant facility were completed at a total cost of $252,000. These expenditures had an estimated useful life of 12 years. c. The leasehold improvements were completed on December 31, 2017, and had an estimated useful life of eight years. The related lease, which would terminate on December 31, 2023, was renewable for an additional four-year term. On April 30, 2021, Cord exercised the renewal option. d. On July 1, 2021, equipment was purchased at a total invoice cost of $335,000. Additional costs of $11,000 for delivery and $60,000 for installation were incurred. e. On September 30, 2021, Cord purchased a new automobile for $13,500. f. On September 30, 2021, a truck with a cost of $25,000 and a book value of $11,000 on date of sale was sold for $12,500. Depreciation for the nine months ended September 30, 2021, was $2,475. g. On December 20, 2021, equipment with a cost of $22,000 and a book value of $3,225 at date of disposition was scrapped without cash recovery. Required: 1. Prepare a schedule analyzing the changes in each of the plant asset accounts during 2021. Do not analyze changes in accumulated depreciation and amortization. 2. For each asset category, prepare a schedule showing depreciation or amortization expense for the year ended December 31, 2021.

Answer 1

Required 1 Land (W.N 1) Land Improvements Buildings (W.N 1) Equipment (W.N 2) Automobilies and trucks Leasehold improvements Total CORD COMPANY Analysis of Changes in Plant Assets For the year Ended December 31, 2021 Balance 12/31/2020 Increase Decrease $ 185,000 630,000 252,000 2,000,000 1,470,000 1,625,000 406,000 22,000 182,000 13,500 25,000 236,000 4,228,000 $ 2,771,500 $ 47,000 Balance 12/31/2021 815,000 252,000 3,470,000 2,009,000 170,500 236,000 $ 6,952,500

Working Notes 1. Allocation to land and Buildings of plant facility acquired from King Corp Value of shares issued for land and Buildings (35,000 $60) $ 2,100,000 Allocation in proporation to appraised values at the date of exchange Assets Amount % of total Land $ 255,000 30% (255,000/850,000) Building 595,000 70% (595,000/850,000) Total 850,000 Value of land and Building acquired from King Corp. Total Value of acquisition Land (2,100,000 x 30%) Building (2,100,000 x 70%) $ $ $ 2,100,000 630,000 1,470,000 $ 2. Cost of Machinery and equipment acquired Total Invoice cost Add: Delivery charges Add: Installation charges Total cost of machinery and equipment acquired 335,000 11,000 60,000 406,000 $

Required 2 CORD COMPANY Depreciation and Amortization Expense For the year Ended December 31, 2021 Land Improvements (W.N3) Buildings (W.N4) Machinery and equipment (W.N5) Automobiles and trucks (W.N 6) Leaseholde improvements (W.N 7) Total Depreciation and Amortization Expense for 2021 Working Notes 3. Calculation of Depreciation on Land Improvements Cost of land improvement as on 03/25/2021 Estimated life Method of depreciation Depreciation on land improvement per year (252,000/12) Depreciation on land improvement during the year 2021 i.e. (1/4/2021 - 12/31/2021) for 9 months (21,000 x 9/12) 15,750 187,866 182,800 27,105 23,600 437,121 252,000 12 years Straight line method 21,000 15,750 $ 4. Depreciation on Buildings A. Cost of Building as on 12/31/2020 B. Accumulated Depreciation as on 12/31/2020 C. Book Value of Buildings as on 12/31/2020 (A-B) Add: Purchase Cost of equipment (01/06/2021) Net book value of buildings (C+D) life (in years) Depreciation method (Declining Method) Depreciation (3,131,100/25) > 150% 2,000,000 -338,900 1,661,100 1,470,000 3,131,100 25 150% 187,866

1,625,000 406,000 10 5. Depreciation on Machinery and Equipment A. Cost of Machinery and equipment as on 12/31/2020 B. Cost of Machinery and equipment acquired on 7/1/2021 C. Estimated useful life (in years) D. Depreciation Method E. Depreciation Expenses Old Machinery and equipment for full year (1,625,000 / 10) Machinery and equipment purchased on 07/01/2021 i.e. for 6 months (406,000/10 x 6/12) Total Depreciation on Machinery and equipment Straight line method 162,500 20,300 182,800 6. Depreciation on Automobiles and trucks Cost of Automobiles and truck as on 12/31/2020 182,000 Less: Accumulated Depreciation as on 12/31/2020 -110,325 Book Value as on 12/31/2020 71,675 Less: Book value as on 12/31/2020 of Truck sold on 09/30/2020 (11,000 + 2,475)) -13,475 Net Book value of automobiles and truck subject to depreciation 58,200 Automobiles acquired 09/30/2021 13,500 Estimated life (in years) Depreciation method (declining balance method) 200% Calculation of depreciation on Automobile and trucks On Old Automoblie and trucks {(58,200 x 200% 1/5 23,280 On New Truck from (Oct - Dec '21) for 3 months {(13,500 x 200%)/5} x 3/12 1,350 Depreciation on truck sold (given) 2,475 Total Depreciation 27,105 Note: Book value of truck sold at the beginning of year (Book value on the date of sale + Depreciation during the year)

236,000 -118,000 7. Depreciation on leasehold improvements Cost of Leasehold improvements as on 12/31/2020 Less: Accumulated Depreciation as on 12/31/2020 Book Value as on 12/31/2020 Amortization period (1/1/2021 to 12/31/2025) (in years) Amortization for leasehold improvements (1,18,000/5) Note: Amortization period is 5 years i.e. renew in 2021 for 4 more years. 118,000 23,600