Classification of Acquisition Costs Selected accounts included i

Classification of Acquisition Costs Selected accounts included in the property, plant, and equipment section of Lobo Corporation’s balance sheet at December 31, 2009, had the following balances.

Land                                                       $300,000

Land improvements                              140,000

Buildings                                              1,100,000

Machinery and equipment                  960,000

During 2010 the following transactions occurred.

1. A tract of land was acquired for $150,000 as a potential future building site.

2. A plant facility consisting of land and building was acquired from Mendota Company in exchange for 20,000 shares of Lobo’s common stock. On the acquisition date, Lobo’s stock had a closing market price of $37 per share on a national stock exchange. The plant facility was carried on Mendota’s books at $110,000 for land and $320,000 for the building at the exchange date. Current appraised values for the land and building, respectively, are $230,000 and $690,000.

3. Items of machinery and equipment were purchased at a total cost of $400,000. Additional costs were incurred as follows.

Freight and unloading                         $13,000

Sales taxes                                               20,000

Installation                                               26,000

4. Expenditures totaling $95,000 were made for new parking lots, streets, and sidewalks at the corporation’s various plant locations. These expenditures had an estimated useful life of 15 years.

5. A machine costing $80,000 on January 1, 2002, was scrapped on June 30, 2010. Double-declining balance depreciation has been recorded on the basis of a 10-year life.

6. A machine was sold for $20,000 on July 1, 2010. Original cost of the machine was $44,000 on January 1, 2007, and it was depreciated on the straight-line basis over an estimated useful life of 7 years and a salvage value of $2,000.

(a) Prepare a detailed analysis of the changes in each of the following balance sheet accounts for 2010.

  • Land
  • Land improvements
  • Buildings
  • Machinery and equipment

(b) List the items in the fact situation that were not used to determine the answer to (a), showing the pertinent amounts and supporting computations in good form for each item. In addition, indicate where, or if, these items should be included in Lobo’s financial statements.

(AICPA adapted)

Depreciation is an important concept in accounting. By definition, depreciation is the wear and tear in the value of a noncurrent asset over its useful life. In simple words, depreciation is the cost of operating a noncurrent asset producing...
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...