Question

The plant asset and accumulated depreciation accounts of Pell Corporation had the following balances at December 31, 2017: Land Land improvements Plant Asset Accumulated Depreciation $ 350,000 180,000 45,000 1,500,000 350,000 1,158,000 405,000 150,000 112,000 Building Machinery and equipment Automobiles Transactions during 2018 were as follows: a. On January 2, 2018, 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. b. On March 31, 2018, a small storage building was donated to the company. The person donating the building originally purchased it three years ago for $25,000. The fair value of the building on the day of the donation was $17,000. c. On May 1. 2018, 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. d. On November 1, 2018, 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 $38 per share. Pell paid legal fees and title insurance totaling $23,000. Shortly after acquisition, the building was razed at a cost of $35,000 in anticipation of new building construction in 2019. e. On December 31, 2018, Pell purchased a small storage building by giving $15,250 cash and an old automobile purchased for $18,000 in 2014. Depreciation on the old automobile recorded through December 31, 2018, totaled $13,500. The fair value of the old automobile was $3,750. Page 565 Required: Prepare a schedule analyzing the changes in each of the plant assets during 2018, with detailed supporting computations.

Answer 1

An item of Property Plant and Equipment should initially be Recorded at Cost. Costs include all costs necessary to bring the asset to working condition for its intended use.

Hence in Part (a) the initial recording of Machinery and Equipment shall be at the following costs:

                        Total Invoice Cost = $2,60,000

                         Freight               =      $5,500

                        Installation Cost =     $27,000

            Initial Measurement(Total) = $292,500

Part (b) The Building Received as donation shall be recorded at Fair Market Value by Debiting Building and crediting the Contribution Revenue Account. Building (initial recognition) = $17,000

Part (c) Expenditure of $50,000 made to repave the parking Lot caused by severe winter weather is General Maintenance, hence will not be added to any asset.

Part (d) Land Initial Measurement :

The Purchase cost of the Land shall be the fair value of asset given up, in this case it is the Shares.

            Purchase Price of Land [$38*10000] = $380,000

            Legal Fees and Title Insurance        = $ 23,000

             Initial Recognition                         = $ 403,000

The cost incurred for getting the building demolished shall not be added to the cost of land as it done after the acquisition got completed.

Part (e) The storage building's initial cost of acquisition shall be the fair value of asset given up and cash amount paid.

              Cash Paid                =15,250

              Fair Value of Old Car = 3,750

               Initial Recognition    = $19,000

      Automobile Derecognition :

      Dr Accumulated Dep              $13500

      Dr Loss on Sale                        $750

      Cr Vendor of Storage Bulding $ 3,750

      Cr Automobiles                      $ 18,000

Schedule of Changes to Fixed Assets:

	Plant Asset	Accumulated Depreciation	Addition/Deletion
Land	350000	0	403000
Land Improvements	180000	45000	0
Building	1500000	350000	17000
Machinery and Equipment	1158000	405000	292500
Automobiles	150000	112000	-18000