(7) Property, plant and equipment

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

	December 31,			December 31,
	2016			2015
Property, Plant, and Equipment:
Land use rights	$	11,755,168		$	7,305,641
Building and improvements		92,927,111			99,299,487
Machinery and equipment		123,932,336			132,785,421
Vehicles		590,619			665,789
Construction in progress		25,084,416			21,697,207
Totals		254,289,650			261,753,545
Less: accumulated depreciation and amortization		(66,599,770	)		(55,562,387	)
Property, Plant and Equipment, net	$	187,689,880		$	206,191,158

In December 2016, the Company completed the purchase of a parcel of state-owned land located in our Xushui County, Baoding plant, with lease terms of 50 years expiring in 2066.

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 $2,162) 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 December 31, 2016 and 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 was $24,328,940 and $25,990,183 as of December 31, 2016 and 2015, respectively. The depreciation of Leased Equipment began in July 2013 and was included with the depreciation expense of the Company’s own assets in the consolidated statement of income. During the years ended December 31, 2016, 2015 and 2014, depreciation of Leased Equipment was $1,633,527, $1,683,581 and $1,650,649, respectively. The accumulated depreciation of the leased asset were $5,274,471 and $3,961,025 as of December 31, 2016 and 2015, respectively. During the years ended December 31, 2016, 2015 and 2014, the gain realized on sale-leaseback transaction was $213,195, $340,947 and $461,609, 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 $102,232 and $327,637 as of December 31, 2016 and 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 2017. For the years ended December 31, 2016, 2015 and 2014, the amount of interest capitalized was $53,535, $154,930 and $698,714, respectively.

As of December 31, 2016 and 2015, certain property, plant and equipment of Orient Paper HB with net values of $9,813,294 and $14,236,083,respectively, have been pledged pursuant to a long-term loan from credit union of Orient Paper HB. In addition, land use right with net values of $6,200,401 and $6,769,894 as of December 31, 2016 and 2015 was pledged for the saleleaseback financing. See “ Financing with Sale-Leaseback ” under Note (8), Loans Payable, for details of the transaction and asset collaterals.

As of December 31, 2016 and 2015, essentially all production equipment of Orient Paper Shengde with net value of $23,654,125 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 $15,287,509, $13,398,990 and $8,289,320 for the years ended December 31, 2016, 2015 and 2014, respectively.