Question

The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2019. The accounting department of Thompson has started the fixed-asset and depreciation schedule presented below. You have been asked to assist in completing this schedule. In addition to ascertaining that the data already on the schedule are correct, you have obtained the following information from the company's records and personnel: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

1. Depreciation is computed from the first of the month of acquisition to the first of the month of disposition.
2. Land A and Building A were acquired from a predecessor corporation. Thompson paid $832,500 for the land and building together. At the time of acquisition, the land had a fair value of $110,400 and the building had a fair value of $809,600.
3. Land B was acquired on October 2, 2019, in exchange for 3,200 newly issued shares of Thompson’s common stock. At the date of acquisition, the stock had a par value of $5 per share and a fair value of $27 per share. During October 2019, Thompson paid $10,600 to demolish an existing building on this land so it could construct a new building.
4. Construction of Building B on the newly acquired land began on October 1, 2020. By September 30, 2021, Thompson had paid $230,000 of the estimated total construction costs of $320,000. Estimated completion and occupancy are July 2022.
5. Certain equipment was donated to the corporation by the city. An independent appraisal of the equipment when donated placed the fair value at $16,800 and the residual value at $2,200.
6. Equipment A’s total cost of $112,000 includes installation charges of $570 and normal repairs and maintenance of $13,000. Residual value is estimated at $4,500. Equipment A was sold on February 1, 2021.
7. On October 1, 2020, Equipment B was acquired with a down payment of $4,200 and the remaining payments to be made in 10 annual installments of $4,200 each beginning October 1, 2021. The prevailing interest rate was 7%.

THOMPSON CORPORATION Fixed Asset and Depreciation Schedule For Fiscal Years Ended September 30, 2020, and September 30, 2021 Assets Acquisition Date Cost Residual Depreciation Method Estimated Life in Years Depreciation for Year Ended 9/30 2020 2021 Land A 10/1/2019 N/A not applicable N/A N/A N/A Building A 10/1/2019 $51,000 Straight-line $14,200 Land B 10/2/2019 N/A not applicable N/A N/A N/A Building B Under construction 230,000 to date — Straight-line 30 — Donated Equipment 10/2/2019 2,200 200% Declining balance 10 Equipment A 10/2/2019 4,500 Sum-of-the years’-digits 9 Equipment B 10/1/2020 — Straight-line 15 —

Answer 1

		Thompson Corporation
						Depreciation
Assets	Acquisition date	Cost	Residual value	Depreciation method	Estimated life in years	2020	2021
Land A	Oct 1,2019	$                                  99,900.00
Building A	Oct 1,2019	$                              7,32,600.00	$       51,000.00	Straight line	48	$ 14,200.00	$ 14,200.00
Land B	Oct 1,2019	$                                  97,000.00
Building B	Under Construction	$                              2,30,000.00		Straight line	30
Donated Equipment	Oct 2.2019	$                                  16,800.00	$         2,200.00	200% double declinig	10	$   3,360.00	$   2,688.00
Equipment A	Oct 2.2019	$                                  99,000.00	$         4,500.00	Sum of years digit	9	$ 21,000.00	$   6,125.00
Equipment B	Oct 1,2020	$                                  35,695.80		Straight line	15		$         2,380
	Working Notes:-
	Land A and Building cost	$                    8,32,500.00
	Appraised Value of Land	$                    1,10,400.00
	Appraised Value of Building	$                    8,09,600.00
	Total of appraised Value	$                    9,20,000.00
1)	Cost of $832500 allocate on the basis of appraised value to Land=($832500*110400/920000)	$                       99,900.00
2)	Cost of $832500 allocate on the basis of appraised value to building=($832500*809600/920000)	$                    7,32,600.00
3)	Useful life=(Cost-Residual value)/Annual Depreciation=($563500-$47500)/$14000	$                              48.00	Years
4)	Under Striaght line Depreciation method, depreciation is same each year	$                       14,200.00
5)	Shares+demolishing cost of existing building=(3000 shares @$27+$10600)	$                       97,000.00
6)	No Depreciation because not in use
7)	Fair Value of Equipment	$                       16,800.00
8)	(Value of Equipment*200%)/Usefuel life=($16800*200%)/10	$                         3,360.00
9)	(Cost of Equipment-Depreciation)*20%=($16800-$3360)*20%	$                         2,688.00
10)	Equipment A
	Cost	$                              1,12,000.00
	Less: Repair & Maintenance	$                                -13,000.00
	Cost capitalized	$                                  99,000.00
11)	(Cost-Residual value)*8/36=($99000-$4500)*(8/36)	$                       21,000.00
12)	(Cost-Residual value)*8/36=($99000-$4500)*(7/36)*(1/3)	$                         6,125.00
	Equipment B
13)	Annual Installment*Present value of annuity due $1 8% for 11 years+Down payment
	Cost= (4200*7.024)+ 4200	$                                  35,695.80
	Useful life	15
14)	Straight line Depreciation=(Cost-Salvage value)/useful life=($35695.80-0)/15	$                                          2,380
	P.V Factor 7%
		P.V on Dollar 1	P.V of annuity
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