Question

Pell Corporation's property, plant, and equipment and accumulated depreciation accounts had the following balances at December 31, 2015:

	Property, Plant, and Equipment	Accumulated Depreciation
Land	$350,000	$ —
Land Improvements	180,000	45,000
Building	1,500,000	350,000
Machinery and Equipment	1,158,000	405,000
Automobiles	150,000	112,000

Depreciation method and useful lives:

• Land improvements: Straight-line; 15 years.
• Building: 150%-declining-balance; 20 years.
• Machinery and equipment: Straight-line; 10 years.
• Automobiles: 150%-declining-balance; 3 years.
• Depreciation is computed to the nearest month. No salvage values are recognized.

Transactions during 2016:

1. On January 2, 2016, 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.
2. On March 31, 2016, a machine purchased for $58,000 on January 3, 2012, was sold for $36,500.
3. On May 1, 2016, 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.
4. On November 2, 2016, Pell acquired a tract of land with an existing building in exchange for 10,000 shares of Pell's $20 par common stock, which had a market price of $38 a share on this date. Pell paid legal fees and title insurance totaling $23,000. The last property tax bill indicated assessed values of $240,000 for land and $60,000 for building. Shortly after acquisition, the building was razed at a cost of $35,000 in anticipation of new building construction in 2017.
5. On December 31, 2016, Pell purchased a new automobile for $15,250 cash and trade-in of an automobile purchased for $18,000 on January 1, 2015. The new automobile has a cash value of $19,000.

Required:

1. Prepare a schedule analyzing the changes in each of the plant assets during 2016. Disregard the related accumulated depreciation accounts.

PELL CORPORATION
Analysis of Changes in Plant Assets
For the Year Ended December 31, 2016
	Balance 12/31/15	Increase	Decrease	Balance 12/31/16
Land	$	$		$
Land improvements
Building
Machinery and equipment
Automobiles
Totals	$	$	$	$

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2. For each asset classification, prepare a schedule showing depreciation expense for the year ended December 31, 2016.

PELL CORPORATION
Depreciation Expense
For the Year Ended December 31, 2016
Land improvements:
Total depreciation on land improvements			$
Building:
Total depreciation on building
Machinery and equipment:
Cost of machinery and equipment, Balance, 12/31/15	$
Deduct machine sold 3/31/16		$
Depreciation after applying straight-line rate
Cost of asset purchased 1/2/16		$
Depreciation
Cost of machine sold 3/31/16		$
Depreciation from 1/1/16 to 3/31/16
Total depreciation on machinery and equipment
Automobiles:
Total depreciation on automobiles
Total depreciation expense for 2016			$

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3. Prepare a schedule showing the gain or loss from each asset disposal that Pell would recognize in its income statement for the year ended December 31, 2016.

PELL CORPORATION
Gain or Loss from Plant Asset Disposals That Would Be Recognized in Income Statement
For the Year Ended December 31, 2016
	Gain or (loss)
Sale of machine 3/31/16:
Selling price	$
Carrying amount of machine sold
Gain on sale	$
Trade-in of automobile 12/31/16:
Carrying amount of trade-in	$
Trade-in allowed
Loss on trade-in
Net gain from asset disposals	$

Answer 1

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AS FOR GIVEN DATA...

1.

a) 1/2 Machinery and equipment (260,000 + 27,000)  287,000

Cash 287,000

b) 3/1 Cash 36,500

Accumulated depreciation 24,650

Machinery and equipment 58 000 ,

Gain on sale 3,150

c) 5/1 Repairs expense 50,000

Cash 50,000

d) 11/1    Land (380,000+23,000+35,000) 438,000

Cash 438,000

e) 12/31 Automobile‐new (15,250+3,750) 19,000

Accumulated depreciation 13,500

Loss on exchange (4,500‐3,750) 750

Automobile‐old 18,000

Cash 15,250

2.

PELL CORPORATION

Depreciation Expense

For the Year Ended December 31, 2016

Land improvements:

     Cost                                                                 $    180,000

     Straight-line rate (1 ÷ 15 years)                                           x 6 2/3%       $ 12,000

Building:

     Book value 12/31/15 ($1,500,000 – 350,000)         $1,150,000

     150% declining balance rate:

     (1 ÷ 20 years = 5% x 1.5)                                                        x 7.5%       $ 86,250

Machinery and Equipment:

     Balance, 12/31/15 $1,158,000

     Deduct machine sold                         (58,000) $1,100,000

     Straight-line rate (1 ÷ 10 years)                                          x 10%         110,000

     Purchased 1/2/16 287,000

     Depreciation                                                            x 10%           28,700

     Machine sold 3/31/16 58,000

     Depreciation for three months                                 x 2.5%             1,450

        Total depreciation on machinery and equipment                   $140,150

Automobiles:

     Book value on 12/31/15 ($150,000 – 112,000)            $38,000

     150% declining balance rate:

     (1 ÷ 3 years = 33.333% x 1.5)                                                 x 50%       $ 19,000

Total depreciation expense for 2016   $257,400

3.

I HOPE YOU UNDERSTAND...

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