Question

At January 1, 2018, Sheridan Limited reported the following property, plant, and equipment accounts:

Accumulated depreciation—buildings $65,600,000

Accumulated depreciation—equipment 49,100,000

Buildings 96,400,000

Equipment 156,900,000

Land 20,300,000

The company uses straight-line depreciation for buildings and equipment, its year end is December 31, and it makes adjusting entries annually. The buildings are estimated to have a 40-year useful life and no residual value; the equipment is estimated to have a 10-year useful life and no residual value. During 2018, the following selected transactions occurred:

Apr. 1 Purchased land for $4,210,000. Paid $1,020,000 cash and issued a three-year, 6% mortgage payable for the balance. Interest on the mortgage is payable annually each April 1.

May 1 Sold equipment for $270,000 cash. The equipment cost $3,021,600 when originally purchased on January 1, 2010.

June 1 Sold land for $3,288,900. Received $934,500 cash and accepted a three-year, 5% note for the balance. The land cost $1,500,000 when purchased on June 1, 2012. Interest on the note is due annually each June 1.

July 1 Purchased equipment for $2,200,000 cash.

Dec. 31 Retired equipment that cost $1,000,000 when purchased on January 1, 2009. No proceeds were received.

Dec. 31 Tested land for impairment and found that its recoverable value was $20,300,000.

a) Record the above transactions.

b) Record any adjusting entries required at December 31.

c) Prepare the property, plant, and equipment section of the company’s statement of financial position at December 31.

Answer 1

Credit Debit 4,210,000 23 a) 24 Date Account Title & Explanation 1-Apr Land Cash Mortgage Payable (To record purchase of Land) 1,020,000 3,190,000 100,720 1-May Depreciation Expense - Equipment (302160*4/12) Accumulated Depreciation - Equipment (To record upto date depreciation expense) 100,720 3,021,600 3,021,600 Cost Price of Equipment Less Salvage Value Depreciable Value (A) Number of Years of Life (B) Depreciation Amount (A/B) Depreciation for 7 years (302160*7) Add Depreciation upto May Total Accumulated Depreciation 302,160 2,115,120 100,720 2,215,840 Cost Price of Equipment Less Accumulated Depreciation Book Value Lesss Sold Loss on sale of Equipment 3,021,600 (2,215,840) 805,760 270,000 535,760

Cash Accumulated Depreciation Loss on sale of Equipment Equipment (To record sale of Equipment) 270,000 2,215,840 535,760 3,021,600 934,500 2,354,400 1-Jun Cash 5% Notes Receivable Land Gain on sale of Land (To record sale of Land) 1,500,000 1,788,900 2,200,000 1-Jul Equipment Cash (To record purchase of Equipment) 2,200,000 64 1,000,000 31-Dec Accumulated Depreciation - Equipment Equipment (To record retirement of Equipment) 66 67 1,000,000 2,710,000 70 31-Dec Loss on Impairment (20300000+4210000-1500000)-20300000 Land (To record loss on impairment of Land) 2,710,000

b) Record any adjusting entries required at December 31. 15,507,840 (156900000-3021600+2200000-1000000)/10 76 31-Dec Depreciation Expense - Equipment Accumulated Depreciation -Equipment (To record upto date depreciation expense) 15,507,840 78 2,410,000 80 31-Dec Depreciation Expense - Building (96400000/40) Accumulated Depreciation - Building (To record depreciation expense) 2,410,000 82 83 143,550 84 31-Dec Interest Expense (3190000*6%*9/12) Interest Payable (To record accrued interest expense) 143,550 ca 68,670 Interest Receivable (2354400*5%*7/12) Interest Revenue (To record accrual of interest revenue) 68,670

91 c) Prepare the property, plant, and equipment section of the company's statement of financial position at December 31. 92 93 Sheridan Limited Property, Plant, and Equipment section (Partial Balance Sheet) As on December 31 Property, plant, and Equipment Land 23010000 Less Loss on Impairment 2,710,000 20,300,000 99 Buildings 96,400,000 Accumulated Depreciation - Building 68,010,000 28,390,000 101 Equipment 155,078,400 102 Less Accumulated Depreciation - Equipment 61,392,000 93,686,400 103 Total Property ,Plant & Equipment 142,376,400 104