(7) Property, plant and equipment

As of September 30, 2015 and December 31, 2014, property, plant and equipment consisted of the following:

	September 30,			December 31,
	2015			2014
Property, Plant, and Equipment:
Land use rights	$	7,457,581		$	7,752,886
Building and improvements		77,322,772			44,889,395
Machinery and equipment		129,658,550			121,332,310
Vehicles		679,636			706,548
Construction in progress		42,868,015			78,484,066
		257,986,554			253,165,205
Less: accumulated depreciation and amortization		(53,352,845	)		(44,952,007	)
Property, Plant and Equipment, net	$	204,633,709		$	208,213,198

As of September 30, 2015 and December 31, 2014, land use rights represented a parcel of state-owned land located in Xushui County of Hebei Province in China, with lease terms of 50 years expiring in 2061.

The Company entered into a sale-leaseback arrangement with a leasing company in China on June 16, 2013 for a total financing proceeds in the amount of RMB 150 million (approximately US$24 million). Under the sale-leaseback arrangement, Orient Paper HB sold certain of its paper manufacturing equipment to the leasing company for an amount of RMB 150 million (approximately US$24 million). Concurrent with the sale of equipment, Orient Paper HB leases back all of the equipment (“Leased Equipment”) sold to the leasing company for a lease term of three years. At the end of the lease term, Orient Paper HB may pay a nominal purchase price of RMB 15,000 (approximately $2,400) to the leasing company and buy back all of the Leased Equipment. The sale-leaseback is treated by the Company as a mere financing and capital lease transaction, rather than a sale of assets (under which gain or loss is immediately recognized) under ASC 840-40-25-4. All of the Leased Equipment are included as part of the property, plant and equipment of the Company as of September 30, 2015 and December 31, 2014. As a result of the sale, a deferred gain on sale of Leased Equipment in the amount of $1,379,282 was created at the closing of the transaction and presented as a non-current liability. The deferred gain would be amortized by the Company during the lease term and would be used to offset the depreciation of the Leased Equipment, respectively. See “Financing with Sale-Leaseback” under Note (8), Loans Payable, for details of the transaction and asset collaterals.

The depreciation of Leased Equipment has started in July 2013 and was included with the depreciation expense of the Company’s own assets in the consolidated statement of income. During the three months ended September 30, 2015 and 2014, depreciation of Leased Equipment were $432,304 and $825,620, respectively. During the nine months ended September 30, 2015 and 2014, depreciation of Leased Equipment were $1,259,837 and $1,237,181, respectively. The accumulated depreciation of the leased asset were $3,616,303 and $2,486,615 as of September 30, 2015 and December 31, 2014. During the three months ended September 30, 2015 and 2014, the gain realized on sale-leaseback transaction were $112,708 and $115,094, respectively. During the nine months ended September 30, 2015 and 2014, the gain realized on sale-leaseback transaction were $344,130 and $345,981, respectively. The gain realized was recorded in cost of sales as a reduction of depreciation expenses. The unamortized deferred gains on sale-lease back are $334,451 and $695,389 as of September 30, 2015 and December 31, 2014, respectively.

On July 1, 2015, Orient Paper HB, China Orient, and other guarantors of Lease Financing Agreement, entered into the 2015 Agreement, to amend and restate the Lease Financing Agreement entered into in 2013. The 2015 Agreement sets forth a modified and extended payment schedule with respect to the remaining payment obligation, with the final repayment date extended to June 21, 2017. In accordance with ASC 840-30-35, the present balances of the capital lease assets and obligations under capital lease were adjusted by an amount equal to the difference between the present value of the future minimum lease payments under the revised agreement (computed using the interest rate used to recognize the lease initially), which was approximately $1,617,574 at the date of the 2015 Agreement.

Construction in progress mainly represents payments for the new 15,000 tonnes per year tissue paper manufacturing equipment PM8, the tissue paper workshops and general infrastructure and administrative facilities in the Wei County industrial park. The tissue paper development project at the Wei County Industrial Park is expected to be completed in the first half of 2016. For the three months ended September 30, 2015 and 2014, the amount of interest capitalized is $19,294 and $207,830, respectively. For the nine months ended September 30, 2015 and 2014, the amount of interest capitalized is $116,494 and $717,058, respectively.

As of September 30, 2015 and December 31, 2014, certain property, plant and equipment of Orient Paper HB with net values of $13,896,033 and $19,300,765 have been pledged for the long-term loan from credit union of Orient Paper HB, respectively. As of September 30, 2015 and December 31, 2014, certain of the Company’s property, plant and equipment in the amount of $30,163 and $29,995 have been pledged for the facility obtained from Bank of Hebei. See “Notes Payable” under Note (10) for details. In addition, land use right with net values of $6,947,979 and $7,339,399 as of September 30, 2015 and December 31, 2014 was pledged for the sale-leaseback financing. See “Financing with Sale-Leaseback” under Note (8), Loans Payable, for details of the transaction and asset collaterals.

As of September 30, 2015 and December 31, 2014, essentially all production equipment of Orient Paper Shengde with net value of $30,012,436 and $33,287,324 has been pledged for the guarantee of Orient Paper HB’s performance under the capital lease.

Depreciation and amortization of property, plant and equipment was $4,969,341 and $2,010,130 for the three months ended September 30, 2015 and 2014, respectively. Depreciation and amortization of property, plant and equipment was $10,061,558 and $5,877,824 for the nine months ended September 30, 2015 and 2014, respectively.