Question

The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2016. 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.):

Depreciation is computed from the first of the month of acquisition to the first of the month of disposition.

Land A and Building A were acquired from a predecessor corporation. Thompson paid $872,500 for the land and building together. At the time of acquisition, the land had a fair value of $76,800 and the building had a fair value of $883,200.

Land B was acquired on October 2, 2016, in exchange for 3,600 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 $31 per share. During October 2016, Thompson paid $11,000 to demolish an existing building on this land so it could construct a new building.

Construction of Building B on the newly acquired land began on October 1, 2017. By September 30, 2018, Thompson had paid $270,000 of the estimated total construction costs of $360,000. Estimated completion and occupancy are July 2019.

Certain equipment was donated to the corporation by the city. An independent appraisal of the equipment when donated placed the fair value at $18,400 and the residual value at $2,600.

Machine A’s total cost of $109,000 includes installation charges of $610 and normal repairs and maintenance of $12,500. Residual value is estimated at $5,200. Machine A was sold on February 1, 2018.

On October 1, 2017, Machine B was acquired with a down payment of $4,600 and the remaining payments to be made in 10 annual installments of $4,600 each beginning October 1, 2018. The prevailing interest rate was 8%.

Required:

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

                                        Thompson Corporation

                          Fixed Asset and depreciation schedule

                       For fiscal year ended september 30, 2017, and september 30, 2018

Assets	Acquisition date	cost	residual	Depreciation method	Estimated life in years	Depreciation 9.30.2017	Depreciation 9.30.2018
Land A	10/1/16	?	N/A	N/A	N/A	N/A	N/A
Building A	10/1/16	?	72,700	SL	?	14,600	?
Land B	10/2/16	?	N/A	N/A	N/A	N/A	N/A
Building B	Under construction	270 000 to date	___	SL	30	___	?
Donated Equipment	10/2/16	?	2600	150% declining balance	10	?	?
Machine A	10/2/16	?	1500	Sum of the yearsdigits	10	?	?
Machine B	10/1/17	?	__	SL	15	___	?

Answer 1

	Assets	Acquisition Date	Cost	Residual	Depreciation Method	Estimated Life in Years	Depreciation 9.30.2017	Depreciation 9.30.2018
	Land A	10-01-2016	69800	N/A	N/A	N/A	N/A	N/A
			(Note:1)
	Building A	10-01-2016	802700	72700	SL	50	14600	14600
			(Note:1)			(Note:2)		(Note:3)
	Land B	10-02-2016	122600	N/A	N/A	N/A	N/A	N/A
			(Note:4)
	Building B	Under construction	270000 to date	N/A	SL	30	N/A	9000
								(270000/30)
	Donated equipment	10-02-2016	18400	2600	150% Declining balance	10	2760	2346
							(Note:5)	(Note:5)
	Machine A	10-02-2016	109000	5200	Sum of the years digits	10	18873	5662
							(Note:6)	(Note:6)
	Machine B	10-01-2017	35466	N/A	SL	15	N/A	2364
			(Note:7)					(Note:7)
	Note:
	1. Segregation of cost of land and building
	Cost of land and building=$872500
	Fair value of Land=$76800
	Fair value of Building=$883200
	Ratio of fair values=76800:883200=1:11.5
	Cost of land allocated=872500*1/12.5=$69800
	Cost of building allocated=872500*11.5/12.5=802700
	2.Estimated life of building A
	Depreciation under SL=(Cost-Residual value)/Estimated life
	14600=(802700-72700)/Life
	Life=730000/14600=50 years
	3. Depreciation under SL would be same for every year.
	4. Cost of land=(3600*31)+11000=122600
	5. Depreciation of donated equipment
	150% declining balance rate=150% of SL rate=150%*1/10=15%
	Year 1:
	Depreciation=18400*15%=2760
	Year 2:
	Depreciation=(18400-2760)*15%=2346
	6. Depreciation of Machine A
	Sum of the years digits=10+9+8+7+6+5+4+3+2+1=55
	Year 1:
	Depreciation=(109000-5200)*10/55=18873
	Year 2:
	Machine A was sold on February 1, 2018
	Depreciation for 4 months
	Depreciation=(109000-5200)*9/55*4/12=5662
	7. Cost and depreciation of Machine B
	Cost of Machine B=Present value of future payments
	Year	Payment	Discount Factor @ 8%	Present Value
	0-Down payment	4600	1	4600
	01-Oct	4600	6.7101	30866
	Total cost			35466
	Depreciation=35466/15=2364