(7) Property, plant and equipment, net

As of September 30, 2016 and December 31, 2015, property, plant and equipment consisted of the following:

	September 30,				December 31,
		2016				2015
Property, Plant, and Equipment:
Land use rights		$	7,104,122			$	7,305,641
Building and improvements			96,534,093				99,299,487
Machinery and equipment			129,125,443				132,785,421
Vehicles			613,544				665,789
Construction in progress			26,119,033				21,697,207
Totals			259,496,235				261,753,545
Less: accumulated depreciation and amortization			(65,651,481	)			(55,562,387	)
Property, Plant and Equipment, net		$	193,844,754			$	206,191,158

As of September 30, 2016 and December 31, 2015, 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$22 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$22 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 $2,246) 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, 2016 and December 31, 2015. 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. See “ Financing with Sale-Leaseback” under Note (8), Loans Payable, for details of the transaction and asset collaterals.

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) and the present balance of the obligation, which was approximately $1,617,574 at the date of the 2015 Agreement. As a result, the capital lease asset cost was recorded at the new cost of $27,599,774 at the date of the 2015 Agreement.

The capital lease asset cost were $25,273,272 and $25,990,183 as of September 30, 2016 and December 31, 2015, respectively. 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, 2016 and 2015, depreciation of Leased Equipment were $407,024 and $432,304, respectively. During the nine months ended September 30, 2016 and 2015, depreciation of Leased Equipment were $1,238,154 and $1,259,837, respectively. The accumulated depreciation of the leased asset were $5,072,341 and $3,961,025 as of September 30, 2016 and December 31, 2015. During the three months ended September 30, 2016 and 2015, the gain realized on sale-leaseback transaction were $53,121 and $112,708, respectively. During the nine months ended September 30, 2016 and 2015, the gain realized on sale-leaseback transaction were $161,594 and $344,130, 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 $159,300 and $327,637 as of September 30, 2016 and December 31, 2015, respectively.

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 2016. For the three months ended September 30, 2016 and 2015, the amount of interest capitalized is $10,839 and $19,294, respectively. For the nine months ended September 30, 2016 and 2015, the amount of interest capitalized is $43,786 and $116,494, respectively.

As of September 30, 2016 and December 31, 2015, certain property, plant and equipment of Orient Paper HB with net values of $10,802,842 and $14,236,083 have been pledged for the long-term loan from credit union of Orient Paper HB, respectively. As of September 30, 2016 and December 31, 2015, certain of the Company’s property, plant and equipment in the amount of $10,241 and $29,175 have been pledged for the facility obtained from Bank of Hebei. In addition, land use right with net values of $6,476,591 and $6,769,894 as of September 30, 2016 and December 31, 2015 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, 2016 and December 31, 2015, essentially all production equipment of Orient Paper Shengde with net value of $25,209,525 and $28,745,628 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 $3,716,022 and $4,969,341 for the three months ended September 30, 2016 and 2015, respectively. Depreciation and amortization of property, plant and equipment was $11,668,976 and $10,061,558 for the nine months ended September 30, 2016 and 2015, respectively.