Hide Assignment Information Group Category 410B Group Work Group Name Group1 Instructions Background Sarasota Sporting Goods Inc has been experiencing growth in the demand for its products over the last several years The last two Olympic Games significantly increased the popularity of basketball around the world As a result, a European sports retailing consortium entered into an agreement with Sarasota's Roundball Division to purchase basketballs and other accessories on an increasing basis over the next five years Sarasota had to obtain additional manufacturing capacity to meet this agreement's quantity commitments A real estate firm located an available factory close to Sarasota's Roundball manufacturing facility Sarasota agreed to purchase the factory and used machinery from Encino Athletic Equipment Company on October 1, 2020 Renovations were necessary to convert the factory for Sarasota's manufacturing use The terms of the agreement required Sarasota to pay Encino $60,000 when renovations started on January 1, 2021, with the balance to be paid as renovations were completed The overall purchase price for the factory and machinery was $480,000 The building renovations were contracted to Malone Construction at $120,000 The payments made as renovations progressed during 2021 are shown below The factory was placed in service on January 1, 2022 1 1 4 1 10 1 12 31 Encino $60,000 $108,000 $132,000 $180,000 Malone 36,000 36,000 48,000 On January 1, 2021, Sarasota secured a $600,000 line of credit with a 12 interest rate to finance the purchase cost of the factory and machinery, and the renovation costs Sarasota drew down on the line of credit to meet the payment schedule shown above this was Sarasota's only outstanding loan during 2021 Interest will be paid annually on January 1 Bob Sprague, Sarasota's controller, will capitalize on this project's maximum allowable interest costs Sarasota's policy regarding purchases of this nature is to use the appraisal value of the land for book purposes and prorate the purchase price balance over the remaining items The building had initially cost Encino $360,000 and had a net book value of $60,000, while the machinery initially cost $150,000 and had a net book value of $48,000 on the date of sale The land was recorded on Encino's books at $48,000 An appraisal conducted by independent appraisers during the acquisition valued the land at $348,000, the building at $126,000, and the machinery at $54,000 Angie Justice, the chief engineer, estimated that the renovated plant would be used for 15 years, with an estimated salvage value of $36,000 Justice estimated that the productive machinery would have a remaining useful life of 5 years and a salvage value of $3,600 Sarasota's depreciation policy specifies the 200 declining balance method for machinery and the 150 declining balance method for the plant One half year's depreciation is taken in the year the plant is placed in service, and one half year is allowed when the property is disposed of or retired Sarasota uses a 360 day year for calculating interest costs Instructions In your group, prepare the following Determine the amounts to be recorded on the books of Sarasota Sporting Goods Inc as of December 31, 2021, for each of the following properties acquired from Encino Athletic Equipment Company Land, Building, and Machinery Calculate Sarasota Sporting Goods Inc 's 2022 depreciation expense, for book purposes, for each of the properties acquired from Encino Athletic Equipment Company Present the accounts and dollar amounts on the comparative balance sheet and income statement for the year ended 12 31 22 related to these new assets, the line of credit, and depreciation (Ignore the cash account and the interest expense account )

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on May 19, 2024