Question

The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2022. 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:

Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
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 $812,500 for the land and building together. At the time of acquisition, the land had a fair value of $72,000 and the building had a fair value of $828,000.
Land B was acquired on October 2, 2022, in exchange for 3,000 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 $25 per share. During October 2022, Thompson paid $10,400 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, 2023. By September 30, 2024, Thompson had paid $210,000 of the estimated total construction costs of $300,000. Estimated completion and occupancy are July 2025.
Certain equipment was donated to the corporation by the city. An independent appraisal of the equipment when donated placed the fair value at $16,000 and the residual value at $2,000.
Equipment A’s total cost of $110,000 includes installation charges of $550 and normal repairs and maintenance of $11,000. Residual value is estimated at $9,000. Equipment A was sold on February 1, 2024.
On October 1, 2023, Equipment B was acquired with a down payment of $4,000 and the remaining payments to be made in 10 annual installments of $4,000 each beginning October 1, 2024. The prevailing interest rate was 8%.
Required:
Supply the correct amount for each answer box on the schedule.
Note: Round your intermediate calculations and final answers to the nearest whole dollar.

Answer 1

The Thompson Corporation asset and depreciation schedule involves several calculations involving fair value, share exchange, interest rates, and cost allocation, as well as depreciation that must be computed over the life of the assets.

Step-by-step explanation:

The question requires the calculation of various figures related to assets accounting, including acquisition cost, depreciation, and interest on financed purchases. Considering the information provided:

Land A and Building A were acquired for a total cost of $812,500. Since the land had a fair value of $72,000, and the building had a fair value of $828,000, the cost allocated to the land and building would be based on their respective fair values at acquisition.

Land B was acquired through exchange for shares. The fair value of shares given was 3,000 shares × $25 per share = $75,000. The demolition costs of $10,400 should be added to the land's cost.

For Building B, payments of $210,000 toward the total cost of $300,000 had been made as of September 30, 2024.

The equipment donated by the city had a fair value of $16,000 and this would be the recognized cost of the equipment.

Equipment A's cost of $110,000 excludes repair and maintenance costs but includes installation charges of $550.

Equipment B was purchased with a present value calculation using the 8% interest rate for the 10 annual payments of $4,000 each. Ignore the down payment for this calculation.

Depreciation Computation

Fixed assets are depreciated over their useful life. Depreciation for buildings and equipment would typically be calculated using methods such as straight-line, double-declining balance, or units of production, depending on company policy. Residual value, like the $9,000 for Equipment A, is considered in calculating depreciation expense.