Question

Problem 9-4A At January 1, 2017, Oriole Company reported the following property, plant, and equipment accounts: Accumulated depreciation—buildings $62,700,000 Accumulated depreciation—equipment 54,100,000 Buildings 97,400,000 Equipment 150,900,000 Land 23,000,000 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 salvage value; the equipment is estimated to have a 10-year useful life and no salvage value. During 2017, the following selected transactions occurred: Apr. 1 Purchased land for $4.50 million. Paid $1.125 million cash and issued a 3-year, 6% note payable for the balance. Interest on the note is payable annually each April 1. May 1 Sold equipment for $330,000 cash. The equipment cost $3.18 million when originally purchased on January 1, 2009. June 1 Sold land for $3.72 million. Received $900,000 cash and accepted a 3-year, 5% note for the balance. The land cost $1.50 million when purchased on June 1, 2011. Interest on the note is due annually each June 1. July 1 Purchased equipment for $2.10 million cash. Dec. 31 Retired equipment that cost $1 million when purchased on December 31, 2007. No proceeds were received.

a)Record the above transactions. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

b) Record any adjusting entries required at December 31. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

c) Prepare the property, plant, and equipment section of the company’s statement of financial position at December 31. (List Property, Plant and Equipment in order of Land, Buildings and Equipment.)

Answer 1

a)	Date	Account titles and explanation			Debit	Credit
	Apr 1.	Land			4500000
		Cash				1125000
		6% notes payable		(4500000-1125000)		3375000
		(Purchased Land)
	May 1.	Cash			330000
		Accumulated depreciation-equipment (Note:1)			2862000
		Equipment				3180000
		Gain on sale of equipment				12000
		(Disposal of equipment)
	June 1.	Cash			900000
		5% note receivable		(3720000-900000)	2820000
		Land				1500000
		Gain on sale of Land				2220000
		(Sale of Land)
	July 1.	Equipment			2100000
		Cash				2100000
		(Purchased equipment)
	Dec 31.	Accumulated depreciation-equipment			1000000
		Equipment				1000000
		(Retired equipment and no proceeds were received)
	Note:1- Accumulated depreciation of equipment sold
	Original cost=$ 3180000
	Acquired on Jan 1,2009
	Useful life=10 years
	Depreciation per year=(Original cost-Salvage value)/Useful life=(3180000-0)/10=$318000
	Depreciation will be same from 2009 till disposal since straight line method is used
	Depreciation from 2009 to 2017=318000*9=$ 2862000
b)	Adjusting entry:
	Date	Account titles and explanation			Debit	Credit
	Dec 31.	Interest expense		(3375000*6%*9/12)	151875
		Interest payable				151875
		(For 6% note from Apr to Dec-9 months)
		Interest receivable		(2820000*5%*7/12)	82250
		Interest revenue				82250
		(For 5% note from June to Dec-7 months)
		Depreciation expense			2435000
		Accumulated depreciation-Building				2435000
		(Note:2)
		(Depreciation recorded for building)
		Depreciation expense			3720500
		Accumulated depreciation-Equipment				3720500
		(Note:3)
		(Depreciation recorded for equipment)
	Note:2
	Original cost=$ 97400000
	Useful life=40 years
	Depreciation per year=(Original cost-Salvage value)/Useful life=(97400000-0)/40=$ 2435000
	Note:3
	Depreciation of equipment:
					$	$
	Beginning value					150900000
	Add: Purchases					2100000
						153000000
	Less:
	Disposal				3180000
	Retirement				1000000	4180000
	Ending value					148820000
	Useful life					40 years
	Depreciation			(148820000/40)		3720500
c)		Property,Plant and equipment
					$	$
	Land	(23000000+4500000+-3720000)				23780000
	Building				97400000
	Less: Accumulated depreciation			(62700000+2435000)	65135000	32265000
	Equipment			(Refer note:3)	148820000
	Less: Accumulated depreciation			(54100000+3720500)	57820500	90999500