Question

Timberly Construction negotiates a lump-sum purchase of several assets from a company that is going out of business. The purchase is completed on January 1, 2017, at a total cash price of $840,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $504,900; land, $297,000; land improvements, $79,200; and four vehicles, $108,900. The company’s fiscal year ends on December 31.

Required:

1-a. Prepare a table to allocate the lump-sum purchase price to the separate assets purchased.
1-b. Prepare the journal entry to record the purchase.
2. Compute the depreciation expense for year 2017 on the building using the straight-line method, assuming a 15-year life and a $31,000 salvage value.
3. Compute the depreciation expense for year 2017 on the land improvements assuming a five-year life and double-declining-balance depreciation.

Answer 1

1-a. Prepare a table to allocate the lump-sum purchase price to the separate assets purchased.

	Cost
Building (840000/990000*504900)	428400
Land (840000/990000*297000)	252000
Land improvement (840000/990000*79200)	67200
Vehicles (840000/990000*108900)	92400
Total	840000

1b) Journal entry :

Date	account and explanation	debit	credit
	Building	428400
	Land	252000
	Land improvement	67200
	Four vehicles	92400
	Cash		840000
	(To record purchase)

2) Journal entry :

Date	account and explanation	debit	credit
	Depreciation expense (428400-31000/15)	26493
	Accumlated depreciation-Building		26493
	(To record depreciation)

3) Journal entry :

Date	account and explanation	debit	credit
	Depreciation expense (67200*40%)	26880
	Accumlated depreciation-Land improvement		26880
	(To record depreciation)