ACC 310F Study Guide - Midterm Guide: Historical Cost, Income Statement, Record Plant
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Before you begin this assignment, it will be helpful if you review
McDonald'sMcDonald's
Corporation
20152015
annual report
(https://www.sec.gov/Archives/edgar/data/63908/000006390816000103/mcd-12312015x10k.htm ).
McDonald'sMcDonald's
Corporation is the world's leading global food service retailer with more than 36,000 locations worldwide in more than 100 countries. The corporation operates and franchises
McDonald'sMcDonald's
restaurants, which serve menu items such as the Big Mac, Chicken McNuggets, and McFlurry desserts. In addition,
McDonald'sMcDonald's
also serves McCafe beverages and pastries.Read the requirements
LOADING...
.
Requirement 1. Where would
McDonald'sMcDonald's
Corporation report plant assets on its financial statements? How are plant assets reported and what is the value as of December 31,
20152015 ?
(Enter any amounts in millions, to the nearest tenth of a million, X.X, as shown in the financial statements.)
Plant assets are reported at | cost | on the | consolidated balance sheet. |
The gross value of plant assets at December 31, 2015 is $ | 37,692.4 | (in millions). |
Requirement 2. Does
McDonald'sMcDonald's
Corporation depreciate its plant assets? How do you know? What is the depreciation method used and the useful lives?
A.
No,
McDonald'sMcDonald's
Corporation does not depreciate its plant assets. We know this because there is no difference between the cost and net value of the plant assets as shown on the consolidated balance sheet. This is reasonable given that the company's only category of plant assets is land, which is not depreciated. As such, no depreciation method is in use.
B.
Yes,
McDonald'sMcDonald's
Corporation depreciates its plant asset. We know this because information about depreciation can be found in the Notes to the Consolidated Financial Statement and an accumulated depreciation and amortization balance is shown on the consolidated balance sheet. The company use the straight-line method to depreciate assets with the following estimated useful lives: up to 40 years for buildings, the lesser of the useful lives of assets or lease terms for leasehold improvements, and three to 12 years for equipment.
C.
Yes,
McDonald'sMcDonald's
Corporation depreciates its plant asset. We know this because information about depreciation can be found in the Notes to the Consolidated Financial Statement and an accumulated depreciation and amortization balance is shown on the consolidated balance sheet. The company use the double-declining-balance method to depreciate assets with the following estimated useful lives: up to 30 years for buildings, five to 10 years for leasehold improvements, and three to 12 years for furniture and equipment.
D.
Yes,
McDonald'sMcDonald's
Corporation depreciates its plant asset. We know this because information about depreciation can be found in the Notes to the Consolidated Financial Statement and depreciation expense is reported on the consolidated statement of income. The company use the double-declining-balance method to depreciate assets with the following estimated useful lives: up to 40 years for buildings, the lesser of the useful lives of assets or lease terms for leasehold improvements, and three to 12 years for equipment.
At December 31, 2015, Cord Company's plant asset and accumulateddepreciation and amortization accounts had balances as follows: |
Category | Plant Asset | Accumulated Depreciation and Amortization | ||||
Land | $ | 178,000 | $ | â | ||
Buildings | 1,650,000 | 331,900 | ||||
Machinery andequipment | 1,275,000 | 320,500 | ||||
Automobiles andtrucks | 175,000 | 103,325 | ||||
Leaseholdimprovements | 222,000 | 111,000 | ||||
Landimprovements | â | â | ||||
Depreciation methods and usefullives: |
Buildingsâ150% decliningbalance; 25 years. |
Machinery and equipmentâStraightline; 10 years. |
Automobiles and trucksâ150%declining balance; 5 years, all acquired after 2012. |
Leasehold improvementsâStraightline. |
Land improvementsâStraightline. |
Depreciation is computed to thenearest month and residual values are immaterial. Transactionsduring 2016 and other information: |
a. | On January 6, 2016, a plant facility consisting of land andbuilding was acquired from King Corp. in exchange for 28,000 sharesof Cord's common stock. On this date, Cord's stock had a fair valueof $50 a share. Current assessed values of land and building forproperty tax purposes are $195,000 and $585,000, respectively. |
b. | On March 25, 2016, new parking lots, streets, and sidewalks atthe acquired plant facility were completed at a total cost of$210,000. These expenditures had an estimated useful life of 12years. |
c. | The leasehold improvements were completed on December 31, 2012,and had an estimated useful life of eight years. The related lease,which would terminate on December 31, 2018, was renewable for anadditional four-year term. On April 29, 2016, Cord exercised therenewal option. |
d. | On July 1, 2016, machinery and equipment were purchased at atotal invoice cost of $328,000. Additional costs of $10,000 fordelivery and $53,000 for installation were incurred. |
e. | On August 30, 2016,Cord purchased a new automobile for $12,800. |
f. | On September 30, 2016, a truck with a cost of $24,300 and a bookvalue of $9,600 on date of sale was sold for $11,800. Depreciationfor the nine months ended September 30, 2016, was $2,160. |
g. | On December 20, 2016, a machine with a cost of $18,500 and abook value of $3,050 at date of disposition was scrapped withoutcash recovery. |
Required: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1. | Prepare a schedule analyzing the changes in each of the plantasset accounts during 2016. Do not analyze changes in accumulateddepreciation and amortization. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
China Express purchased land for $140,000. Prior to construction on the new building, the land had to be cleared of trees and brush. Construction costs incurred during the first year are listed below:
Land clearing costs | $ 5,000 |
Architect fees (for new building) | 30,000 |
Legal fees for title investigation of land | 1,000 |
Property taxes on land (for the first year) | 2,500 |
Building construction costs | 440,000 |
Required:
Determine the amounts that should be recorded in the land and the new building accounts.
2. Diamond Autobody purchased some new equipment. The new equipment cost $90,000. The company estimates the equipment will have a residual value of $10,000. Cheetah Copy also estimates it will use the equipment for four years or about 5,000 total hours.
Required:
Prepare a depreciation schedule for three years using the following methods:
1. Straight-line.
2. Double-declining-balance.
3. Activity-based. Actual use per year was as follows:
Year | Hours Used |
1 | 1,200 |
2 | 1,400 |
3 | 1,500 |
4 | 1,100 |
3. The Snack Stop had the following long-term asset balances as of January 1, 2015:
Cost | Accumulated Depreciation | Book Value | ||||
Land | $90,000 | â | $90,000 | |||
Building | 600,000 | ($60,000) | 540,000 | |||
Equipment | 200,000 | (72,000) | 128,000 |
All of the assets were purchased at the beginning of 2013. The building is depreciated over a 20-year service life using the straight-line method and estimating no residual value. The equipment is depreciated over a 10-year useful life using the double-declining-balance method with an estimated residual value of $10,000. Depreciation has already been calculated for the first two years.
Required:
1. For the year ended December 31, 2015, record depreciation expense for buildings and equipment. Land is not depreciated.
2. Calculate the book value for each of the four long-term assets at December 31, 2015.