Exam 8: Property, plant and Equipment

Which of the following is not a characteristic of property,plant and equipment (PPE)?

In December 2019,Bea,the owner of Walnut Corp,paid for a parcel of land along with a warehouse on behalf of Walnut,the registered owner of the property,for a total cost of $1,500,000.Bea also paid a real estate commission of $40,000 and legal fees of $10,000 in connection with this purchase,plus $30,000 for the demolition of the warehouse.Walnut will reimburse Bea for these costs in January 2020 and will begin construction of an office building on this land.Prior to the purchase,the land and warehouse were appraised at $900,000 and $600,000,respectively. On December 31,2019,Walnut Corp and Teak Corp.exchanged equipment.The exchange met the test for commercial substance for accounting purposes.Details of the carrying values and fair values of the equipment on the date of the exchange were as follows: On October 1,2019,Walnut purchased some land by signing a three-year non-interest-bearing note payable for $500,000.Walnut pays interest at the rate of 12% on other loans and was pleased to get a non-interest-bearing note payable on this deal. Required: Prepare the required journal entries for these transactions,as well as any related year-end adjustments.Ignore income taxes.Round all values to the nearest dollar,if necessary.

Seall-Test Ltd.owns a machine that it purchased on Jan 1,2016 for $600,000.The machine had an estimated useful life of 10 years and an estimated residual value of $100,000.The company uses the declining balance method with a rate of 20%.The machine was sold on December 31,2018 for $140,000.What was the depreciation expense for 2017?

On March 31,2019,a machine costing $3,000,000 was acquired.The company estimates that the asset will have an estimated useful life of five years and a residual value of $450,000.On April 1,2024,the asset is sold for $550,000.The company uses straight-line depreciation.The company has a December 31 year-end,and records partial depreciation in the year of acquisition or disposal based on the number of months the asset is available for use in the year. Required: Prepare the entries to record depreciation expense for 2019 and 2020,and all entries required for 2024 as they relate to this asset.

In December 2018,Ami,the owner of Elm,paid for a parcel of land along with a warehouse on behalf of Elm,the registered owner of the property,for a total cost of $700,000.Ami also paid a real estate commission of $35,000 and legal fees of $5,000 in connection with this purchase,plus $25,000 for the demolition of the warehouse.Elm will reimburse Ami for these costs in January 2019 and will begin construction of an office building on this land.Prior to the purchase,the land and warehouse were appraised at $500,000 and $200,000,respectively.How much should be capitalized to the value of the building in 2018?

Centennial owns a machine that it purchased on Jan 1,2016 for $400,000.The machine had an estimated useful life of 10 years with a production capacity for 80,000 units and was expected to have no residual value.The company uses the units-of-production method to record depreciation.The machine produced 15,000 units in 2016,18,000 units in 2017 and 25,000 units in 2018.The machine was sold on December 30,2018 for $350,000.What was the accumulated depreciation at December 31,2016?

Ronald exchanged similar assets with Silver Company in a transaction without commercial substance.Ronald gave up equipment that had a net book value of $47,000 (fair value $49,000)and Silver exchanged equipment with a net book value of $36,000 (fair value $35,000).What is the correct value at which Ronald should record the new equipment?

A building costing $7,000,000 was purchased on January 1,2017.Based on management's best estimates,the useful life of the building was estimated to be 40 years,with no residual value.During 2023 it was discovered that the local government had plans to build a freeway where the building stands.This project would require significant engineering and regulatory approval,so the site would be expropriated by January 1,2029.The government agreed to pay $320,000 compensation for the building.The company has a December 31 year-end. Required: Case A: Prepare the journal entries to record depreciation for 2017 and 2023.The company uses straight-line depreciation. Case B: Same as Case A except the company uses the double-declining balance method.The rate will be 5% until 2023 and 2/6 or 33.33% thereafter.Prepare the journal entries to record depreciation for 2017 and 2023.