Question

roblem 8-1A Plant asset costs; depreciation methods LO C1, P1

[The following information applies to the questions displayed below.]

Timberly Construction makes a lump-sum purchase of several assets on January 1 at a total cash price of $820,000. The estimated market values of the purchased assets are building, $495,000; land, $326,700; land improvements, $49,500; and four vehicles, $118,800.

Problem 8-1A Part 1-3

Required:

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 $30,000 salvage value.
3. Compute the first-year depreciation expense on the land improvements assuming a five-year life and double-declining-balance depreciation.

roblem 8-1A Plant asset costs; depreciation methods LO C1, P1

[The following information applies to the questions displayed below.]

Timberly Construction makes a lump-sum purchase of several assets on January 1 at a total cash price of $820,000. The estimated market values of the purchased assets are building, $495,000; land, $326,700; land improvements, $49,500; and four vehicles, $118,800.

Problem 8-1A Part 1-3

Required:

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 $30,000 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

1a) Allocation

	Market value	Percentage	*	Lump sum purchase	Allocated cost
Building	495000	50%	*	820000	410000
Land	326700	33%		820000	270600
Land improvement	49500	5%		820000	41000
Four vehicle	118800	12%		820000	98400
Total	990000	100%			820000

Journal entry

Date	General Journal	Debit	Credit
	Building	410000
	Land	270600
	Land improvement	41000
	Four vehicle	98400
	Cash		820000

2) Depreciation expense on building = (410000-30000/15) = 25333

3) Depreciation expense on land improvement = 41000*40% = 16400