In: Accounting
At January 1, 2018, Hammersmith Limited reported the following property, plant, and equipment accounts: Accumulated depreciation—buildings $24,200,000 Accumulated depreciation—equipment 30,000,000 Buildings 57,000,000 Equipment 96,000,000 Land 8,000,000 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 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 $3.8 million. Paid $950,000 cash and issued a 10-year, 6% mortgage payable for the balance. Interest is payable at maturity. May 1 Sold equipment for $700,000 cash. The equipment cost $1.5 million when it was originally purchased on January 1, 2014. June 1 Sold land for $2.4 million. Received $760,000 cash and accepted a 6% note for the balance. The note is due at maturity. The land cost $600,000 when purchased on June 1, 2008. July 1 Purchased equipment for $2 million on account, terms n/60. Sept. 2 Paid amount owing on account for purchase of equipment on July 1. Dec. 31 Retired equipment that cost $940,000 when purchased on January 1, 2009. No proceeds were received. 31 Tested land for impairment and found that its recoverable value was $11 million. Instructions
(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. Identify intangible assets and goodwill.
Could you give a explanation to how the answers were met? Thanks
(a) April 1 Land ................................................................... 3,800,000
Cash........................................................... 950,000
Mortgage Payable...................................... 2,850,000
May 1 Depreciation Expense......................................... 50,000
Accumulated Depreciation—Equipment..... 50,000
($1,500,000 ÷ 10 × 4/12 = $50,000)
1 Cash ................................................................... 700,000
Accumulated Depreciation—Equipment........... 650,000
Loss on Disposal................................................ 150,000
Equipment................................................. 1,500,000
Cash proceeds $700,000
Cost $1,500,000
Accumulated depreciation—equipment
[($1,500,000 ÷ 10) × 4 + $50,000)] 650,000
Carrying amount 850,000
Loss on disposal $(150,000)
June 1 Cash ................................................................... 760,000
Notes Receivable................................................ 1,640,000
Land.......................................................... 600,000
Gain on Disposal....................................... 1,800,000
July 1 Equipment.......................................................... 2,000,000
Accounts Payable.......................................... 2,000,000
Sept. 2 Accounts Payable............................................... 2,000,000
Cash........................................................... 2,000,000
Dec. 31 Depreciation Expense......................................... 94,000
Accumulated Depreciation—Equipment..... 94,000
($940,000 ÷ 10 = $94,000)
31 Accumulated Depreciation—Equipment........... 940,000
Equipment................................................. 940,000
31 Impairment Loss................................................. 200,000
Land.......................................................... 200,000
(8,000,000 +3,800,000 – 600,000 = $11,200,000)
($11,200,000 – $11,000,000 = $200,000)
(b) Dec. 31 Depreciation Expense......................................... 1,425,000
Accumulated Depreciation—Buildings.... 1,425,000
($57,000,000 ÷ 40 = $1,425,000)
31 Depreciation Expense......................................... 9,456,000
Accumulated Depreciation—Equipment..... 9,456,000
$93,560,000* ÷ 10 $9,356,000
$2,000,000 ÷ 10 × 6/12 100,000
$9,456,000
*$96,000,000 – $1,500,000 – $940,000 = $93,560,000
31 Interest Expense................................................. 128,250
Interest Payable......................................... 128,250
($2,850,000 × 6% × 9/12 = $128,250)
31 Interest Receivable............................................. 57,400
Interest Revenue....................................... 57,400
($1,640,000 × 6% × 7/12 = $57,400)
(c) HAMMERSMITHLIMITED
Statement of Financial Position (Partial)
December 31, 2018
Property, plant, and equipment*
Land........................................................................... $11,000,000
Buildings.................................................................... $57,000,000
Less: Accumulated depreciation................................ 25,625,000 31,375,000
Equipment.................................................................. $95,560,000
Less: Accumulated depreciation................................ 38,010,000 57,550,000
Total property, plant, and equipment................. $99,925,000
*See T accounts on the following page.
Land
Jan. 1, 2018 8,000,000 June 1, 2018 600,000
April 1, 2018 3,800,000 Dec. 31, 2018 200,000
Dec. 31, 2018 Bal. 11,000,000
Buildings
Jan. 1, 2018 57,000,000
Dec. 31, 2018 Bal. 57,000,000
Equipment
Jan. 1, 2018 96,000,000 May 1, 2018 1,500,000
July 1, 2018 2,000,000 Dec. 31, 2018 940,000
Dec. 31, 2018 Bal. 95,560,000
Accumulated Depreciation—Buildings
Jan. 1, 2018 24,200,000
Dec. 31, 2018 1,425,000
Dec. 31, 2018 Bal. 25,625,000
Accumulated Depreciation—Equipment
May 1, 2018 650,000 Jan. 1, 2018 30,000,000
Dec. 31, 2018 940,000 May 1, 2018 50,000
Dec. 31, 2018 94,000
Dec. 31, 2018 9,456,000
Dec. 31, 2018 Bal. 38,010,000