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 $892,500 for the land and building together. At the time of acquisition, the land had a fair value of $117,600 and the building had a fair value of $862,400.
3. Land B was acquired on October 2, 2019, in exchange for 3,800 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 $33 per share. During October 2019, Thompson paid $11,200 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 $290,000 of the estimated total construction costs of $380,000. 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 $19,200 and the residual value at $2,800.
6. Equipment A’s total cost of $101,000 includes installation charges of $630 and normal repairs and maintenance of $12,700. Residual value is estimated at $4,600. Equipment A was sold on February 1, 2021.
7. On October 1, 2020, Equipment B was acquired with a down payment of $4,800 and the remaining payments to be made in 10 annual installments of $4,800 each beginning October 1, 2021. The prevailing interest rate was 7%.

Required:
Supply the correct amount for each answer box on the schedule. (Round your intermediate calculations and final answers to the nearest whole dollar.)

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 $75,000 Straight-line $14,800 Land B 10/2/2019 N/A not applicable N/A N/A N/A Building B Under construction 290,000 to date — Straight-line 30 — Donated Equipment 10/2/2019 2,800 200% Declining balance 10 Equipment A 10/2/2019 4,600 Sum-of-the years’-digits 8 Equipment B 10/1/2020 — Straight-line 15 —

Answer 1

Requirement 1: Compute cost of land as follows

Cost of land = $107,100 ($892,500× $117,600 ÷ ($117,600 + $862,400))

Requirement 2: Compute cost of building as follows

Cost of building = $785,400 ($892,500× $862,400 ÷ ($117,600 + $862,400))

Requirement 3: Estimated useful life in years as follows

Estimated life = (Cost − Salvage value) ÷ Annual depreciation expense

                        = ($785,400 − $75,000) ÷ $14,800

                        = 48 years

Requirement 4: The Company is using straight-line method and therefore the depreciation expense is $14,800.

Requirement 5: Compute cost of land as follows

Particulars	Amount
Fair value of shares issued ($33 × 3,800)	$125,400
Add: Demolition cost of existing building	$11,200
Total cost of land	$136,600

Requirement 6: No depreciation is provided on under-construction assets.

Requirement 7: The Company should recognize the equipment at fair value of $19,200.

Requirement 8: Compute depreciation expense on the equipment as follows

Depreciation rate = 15% ((1 ÷ 10 years) × 1.5 times

Depreciation expense = $2,880 ($19,200 × 15%)

Requirement 9: Compute depreciation expense on the equipment as follows

Depreciation expense = $2,448 (($19,200 − $2,880) × 15%)

Requirement 10: Compute cost of machinery as follows

Particulars	Amount
Total cost of equipment	$101,000
Deduct: Normal repairs and maintenance	$12,700
Cost of equipment	$88,300

Requirement 11: Compute depreciation expense as follows

Depreciation expense = ($88,300 − $4,600) × (8 ÷ (8+7+6+5+4+3+2+1))

= $18,600

Requirement 12: Compute depreciation expense as follows

Depreciation expense = ($88,300 − $4,600) × (7 ÷ (8+7+6+5+4+3+2+1)) × 4 ÷ 12

                                    = $5,425

Requirement 13: Compute cost of equipment as follows

Cost of equipment = $40,873 (($4,800 × 7.51523) + $4,800)

Requirement 14: Compute depreciation expense as follows

Depreciation expense = $2,725 ($40,873 ÷ 15 years)