Question

Skysong Corporation, a manufacturer of steel products, began operations on October 1, 2016. The accounting department of Skysong 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.

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. Skysong paid $844,000 for the land and building together. At the time of acquisition, the land had an appraised value of $86,100, and the building had an appraised value of $774,900.
3.		Land B was acquired on October 2, 2016, in exchange for 2,600 newly issued shares of Skysong’s common stock. At the date of acquisition, the stock had a par value of $5 per share and a fair value of $28 per share. During October 2016, Skysong paid $15,300 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, 2017. By September 30, 2018, Skysong had paid $307,000 of the estimated total construction costs of $428,900. It is estimated that the building will be completed and occupied by July 2019.
5.		Certain equipment was donated to the corporation by a local university. An independent appraisal of the equipment when donated placed the fair value at $38,900 and the salvage value at $2,700.
6.		Machinery A’s total cost of $181,800 includes installation expense of $540 and normal repairs and maintenance of $14,400. Salvage value is estimated at $6,500. Machinery A was sold on February 1, 2018.
		7. On October 1, 2017, Machinery B was acquired with a down payment of $5,280 and the remaining payments to be made in 11 annual installments of $5,540 each beginning October 1, 2017. The prevailing interest rate was 8%. The following data were abstracted from present value tables (rounded). of $1.00 at 8% Present value of an ordinary annuity of $1.00 at 8% 10 years 0.463 10 years 6.710 11 years 0.429 11 years 7.139 15 years 0.315 15 years 8.559 Complete the schedule below. (Round answers to 0 decimal places, e.g. 45,892.) Depreciation Expense Year Ended September 30 Depreciation Expense Year Ended September 30 Assets Acquisition Date Cost Salvage Depreciation Method Estimated Life in Years 2017 2018 Land A October 1,2016 1.________ N/A N/A N/A N/A N/A Building A October 1, 2016 2._______ $43,400 Straight-line 50 $14,616 3.________ Land B October 2, 2016 $88,100 N/A N/A N/A N/A N/A Building B Under Construction $307,000 up to date N/A Straight-line 30 N/A 4._________ Donated Equipment October 2, 2016 $38,900 2,700 150 % declining-balance 10 5.________ 6.________ Machinery A October 2, 2016 $167,400 6,500 Sum-of-the-years'-digits 8 7.________ 8.________ Machinery B October 1, 2017 $47,993 N/A Straight-line 20 N/A 9._________

Answer 1

	Land A
1	Cost = $844000 x $86100/($86100 + $774900) = $844000 x $86100/$861000 = $84400
	Building A
2	Cost = $844000 x $774900/($86100 + $774900) = $844000 x $774900/$861000 = $759600
3	Depreciation expense year ended September 30, 2018 = ($759600 - $43400)/50 = $14324
	Building B
4	Depreciation expense year ended September 30, 2018 = $0
	Donated Equipment
5	Depreciation expense year ended September 30, 2017: $5835
6	Depreciation expense year ended September 30, 2018: $4960
	Machinery A
7	Depreciation expense year ended September 30, 2017: $35756
8	Depreciation expense year ended September 30, 2018: $10429
	Machinery B
9	Depreciation expense year ended September 30, 2018 = $47993/20 = $2399.65 = $2400

Workings:

Donated Equipment

Straight-line depreciation rate = 100%/10 years = 10%

150% declining balance depreciation rate = 10% x 150% = 15%

Year	Book Value Beginning of Year	x	Depreciation Rate	=	Annual Depreciation Expense	End of Year
						Accumulated Depreciation	Book Value
								2016	38900		15%		5835	5835	33065
2017	33065		15%		4960	10795	28105

Machinery A

Sum-of-the-years'-digits = 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 = 36

Depreciable cost = $167400 - $6500 = $160900

Depreciation expense year ended September 30, 2017 = $160900 x 8/36 = $35755.55 = $35756

Depreciation expense year ended September 30, 2018: $10429

Depreciation expense for the year = $160900 x 7/36 = $31286.11 = $31286

Depreciation upto February 1, 2018 = $31286 x 4/12 = $10429