Question

Timberly Construction makes a lump-sum purchase of several assets on January 1 at a total cash price of $840,000. The estimated market values of the purchased assets are building, $479,400; land, $244,400; land improvements, $75,200; and four vehicles, $141,000.

1-a. Allocate the lump-sum purchase price to the separate assets purchased.
1-b. Prepare the journal entry to record the purchase.
2. Compute the first-year depreciation expense on the building using the straight-line method, assuming a 15-year life and a $28,000 salvage value.
3. Compute the first-year depreciation expense on the land improvements assuming a five-year life and double-declining-balance depreciation.

Answer 1

Solution

1a
Allocation of total cost	Appraised Value	Percent of Total Appraised Value	x	Total cost of Acquisition	Apportioned Cost
Building	479,400	51%	x	840,000	428,400
Land	244,400	26%	x	840,000	218,400
Land improvements	75,200	8%	x	840,000	67,200
Vehicles	141,000	15%	x	840,000	126,000
Total	940,000	100%			820,000
b
Date	General Journal	Debit	Credit
1-Jan	Building	428,400
	Land	218,400
	Land improvements	67,200
	Vehicles	126,000
	Cash		840,000
2
Depreciation expense on building	26,693	=(428,400-28,000)/15
3
Depreciation rate	40%	=1/5*2
Depreciation expense on land improvements	26,880	=67,200*40%