Question

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

Accumulated depreciation—buildings		$59,500,000
Accumulated depreciation—equipment		57,100,000
Buildings		102,500,000
Equipment		152,600,000
Land		20,600,000

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 $4,790,000. Paid $1,040,000 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 $330,000 cash. The equipment cost $2,576,700 when originally purchased on January 1, 2010.
June	1		Sold land for $3,275,700. Received $838,500 cash and accepted a three-year, 5% note for the balance. The land cost $1,300,000 when purchased on June 1, 2012. Interest on the note is due annually each June 1.
July	1		Purchased equipment for $2,000,000 cash.
Dec.	31		Retired equipment that cost $900,000 when purchased on January 1, 2009. No proceeds were received.
	31		Tested land for impairment and found that its recoverable value was $20,600,000.

Debit Credit Date TApr. 1 Account Titles and Explanation Land 4790000 Cash 040000 T Mortgage Payable 3750000 May 1 Depreciation Expense | Accumulated Depreciation - Equipment 85890 (To record depreciation expense) May 1 Cash 330000 Accumulated Depreciation - Equipment 2138661 Loss on Disposal 108039 Equipment 2576700 (To record loss/gain on sale of equipment) June 1 Cash 1836,500 2437200 Notes Receivable

Answer 1

Date	Account Titles and Explanation	Debit	Credit
May 1	Cash	330000
	Accumulated depreciation-equipment*	2147250
	Loss on disposal	99450
	Equipment		2576700
	(To record loss/gain on sale of equipment)
July 1	Equipment	2000000
	Cash		2000000
Dec. 31	Depreciation expense ($900000/10)	90000
	Accumulated depreciation-equipment		90000
	(To record depreciation expense)
Dec. 31	Impairment loss	4790000
	Land		4790000
	(To record impairment loss)

*Accumulated depreciation-equipment:

Annual depreciation = $2576700/10 = $257670

Accumulated depreciation = ($257670 x 8) + $85890 = $2147250

Date	Account Titles and Explanation	Debit	Credit
Dec. 31	Depreciation expense*	15012330
	Accumulated depreciation-equipment		15012330
	(To record depreciation expense on equipment)
Dec. 31	Interest expense ($3750000 x 6% x 9/12)	168750
	Interest payable		168750
	(To record interest expense)
Dec. 31	Interest receivable ($2437200 x 5% x 7/12)	71085
	Interest revenue		71085
	(To record interest revenue)

*Depreciation expense:

Depreciation on Jan. 1 balance: ($152600000 - $2576700 - $900000)/10 = $14912330

Depreciation on new equipment purchased: ($2000000/10 x 1/2) = $100000

Total depreciation expense = $14912330 + $100000 = $15012330

SUNLAND LIMITED
Statement of Financial Position (Partial)
December 31, 2018
Assets
Property, Plant, and Equipment
Land		20600000
Buildings	102500000
Less: Accumulated depreciation-Buildings	62062500	40437500
Equipment	151123300
Less: Accumulated depreciation-Equipment	69240970	81882330
Total property, plant, and equipment		142919830