Computation of Depreciation and Amortization
Information pertaining to Hedlund Corporation’s property, plant, and equipment for 2008 follows.
|
Account balances at January 1, 2008: |
Debit |
Credit |
|
Land |
$ 150,000 |
|
|
Buildings |
1,200,000 |
|
|
Accumulated Depreciation—Buildings |
|
$263,100 |
|
Machinery and Equipment |
900,000 |
|
|
Accumulated Depreciation—Machinery and Equipment |
|
250,000 |
|
Automotive Equipment |
115,000 |
|
|
Accumulated Depreciation—Automotive Equipment |
|
84,600 |
|
Depreciation data: |
Depreciation Method |
Useful Life |
|
Buildings |
150% declining balance |
25 years |
|
Machinery and Equipment |
Straight line |
10 years |
|
Automotive Equipment |
Sum of the years’ digits |
4 years |
|
Leasehold Improvements |
Straight line |
— |
The salvage values of the depreciable assets are immaterial. Depreciation is computed to the nearest month.
Transactions during 2008 and other information are as follows:
(a) On January 2, 2008, Hedlund purchased a new car for $20,000 cash and trade in of a 2 year old car with a cost of $18,000 and a book value of $5,400. The new car has a cash price of $24,000; the market value of the trade in is not known.
(b) On April 1, 2008, a machine purchased for $23,000 on April 1, 2003,was destroyed by fire. Hedlund recovered $15,500 from its insurance company.
(c) On May 1, 2008, costs of $168,000 were incurred to improve leased office premises. The leasehold improvements have a useful life of eight years. The related lease terminates on December 31, 2014.
(d) On July 1, 2008, machinery and equipment were purchased at a total invoice cost of $280,000; additional costs of $5,000 for freight and $25,000 for installation were incurred.
(e) Hedlund determined that the automotive equipment comprising the $115,000 balance at January 1, 2008, would have been depreciated at a total amount of $18,000 for the year ended December 31, 2008.
Instructions:
1. Compute the total depreciation and amortization expense that would appear on Hedlund’s income statement for the year ended December 31, 2008. Also compute the accumulated depreciation and amortization that would appear on the balance sheet at December 31, 2008.
2. Compute the total gain or loss from disposal of assets that would appear in Hedlund’s income statement for the year ended December 31, 2008.
3. Prepare the noncurrent operating assets section of Hedlund’s December 31, 2008, balance sheet.