Question

The plant asset and accumulated depreciation accounts of Pell Corporation had the following balances at December 31, 2020: Plant Asset Accumulated DepreciationLand $460,000 $-Land improvements 235,000 56,000Building 2,050,000 361,000Equipment 1,180,000 416,000Automobiles 205,000 123,000Transactions during 2021 were as follows:a. On January 2, 2021, equipment was purchased at a total invoice cost of $315,000, which included a $6,600 charge for freight. Installation costs of $38,000 were incurred.b. On March 31, 2021, a small storage building was donated to the company. The person donating the building originally purchased it three years ago for $30,000. The fair value of the building on the day of the donation was $20,000.c. On May 1, 2021, expenditures of $61,000 were made to repave parking lots at Pell's plant location. The work was necessitated by damage caused by severe winter weather. The repair doesn't provide future benefits beyond those originally anticipated.d. On November 1, 2021, Pell acquired a tract of land with an existing building in exchange for 10,000 shares of Pell's common stock that had a market price of $39 per share. Pell paid legal fees and title insurance totaling $34,000. Shortly after the acquisition, the building was razed at a cost of $46,000 in anticipation of new building construction in 2022.e. On December 31, 2021, Pell purchased a small storage building by giving $16,350 cash, and an old automobile purchased for $23,500 in 2014. Depreciation on the old automobile recorded through December 31, 2021, totaled $14,600. The fair value of the old automobile was $4,850.Prepare a schedule analyzing the changes in each of the plant assets during 2021.

Answer 1

Analysis of Pell Corporation's plant asset changes for 2021 involves increasing asset values due to new purchases, donations, and exchanges, while also considering additional costs such as installation and razing. Adjustments are also made for exchanged old assets at their net book value.

Step-by-step explanation:

The student wants to prepare a schedule analyzing the changes in each of the plant assets during 2021 for Pell Corporation, considering various transactions such as purchases, donations, and exchanges involving assets like land, buildings, and equipment.

• 
  
• Land improvements will increase by the amount spent on repaving parking lots ($61,000), as this is a capital expenditure.
• 
  
• Buildings will increase by the fair value of the donated building ($20,000).
• 
  
• Equipment will increase by the invoice cost and installation costs ($315,000 + $38,000).
• 
  
• Land and buildings will increase by the value of the tract exchanged for shares (($39/share * 10,000 shares) + $34,000), minus the razing cost, as the building was razed ($46,000).
• 
  
• Finally, the storage building will be added at its acquisition cost minus the net book value (cost less accumulated depreciation) of the old automobile given in exchange ($16,350 + $4,850).

Answer 2

The changes in Pell Corporation's plant assets for 2021 include purchases, a donation, expenditures for maintenance, and asset exchanges. These transactions resulted in increments to the Equipment, Buildings, and Land accounts, with a notable disposal and reinvestment in a new building.

Step-by-step explanation:

The changes in plant assets for Pell Corporation during 2021 involve various transactions, each affecting the value of assets differently.

• Equipment purchase on January 2, 2021: The equipment was purchased for $315,000, including freight, with an additional $38,000 installation costs. These amounts increase the Equipment account total by $353,000.
• Donation received on March 31, 2021: A storage building valued at $20,000 was donated to Pell, thus increasing the Buildings account by $20,000.
• Expenditures on May 1, 2021: Pell spent $61,000 for parking lot repaving, which is an expense and not capitalized as it does not extend the asset's useful life beyond the original estimate. Therefore, there is no change to the value of land improvements asset accounts.
• Land and building acquisition on November 1, 2021: The tract of land with a building was acquired for the market value of shares issued at $390,000 (10,000 shares at $39 each) plus $34,000 in legal fees and title insurance, totaling $424,000.
• The razed building cost of $46,000 is also considered part of the land cost as it prepares the land for new construction. This results in an increase in the Land account by $470,000 ($424,000 + $46,000).
• Storage building purchase on December 31, 2021: A storage building was purchased for $16,350 cash plus an old automobile given in exchange that had a book value of $8,900 ($23,500 initial cost – $14,600 accumulated depreciation) and a fair value of $4,850.
• The carrying amount of the automobile is removed from the Automobiles account and Accumulated Depreciation, and the building is added to the Buildings account. The fair value of the old automobile is used for the entry, thus increasing the Buildings account by $21,200 ($16,350 + $4,850).

In conclusion, each transaction needs to be carefully analyzed to determine how it affects the plant asset accounts, whether leading to increases in the asset's value, conveyance of a donated asset, or proper disposal and acquisition accounting when assets are exchanged.