Question

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Timberly Construction makes a lump-sum purchase of several assets on January 1 at a total cash price of $830,000. The estimated market values of the purchased assets are building, $441,800; land, $310,200; land improvements, $37,600; and four vehicles, $150,400.

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 $31,000 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

Allocation

Asset	Market value of assets	Percentage of total market value	*	Total Cost of acquisition Cost	Apportioned cost
Building	441800	47%		830000	390100
Land	310200	33%		830000	273900
Land improvement	37600	4%		830000	33200
Vehicle	150400	16%		830000	132800
Total	940000	100%			830000

Journal entry

No	Account and explanation	Debit	Credit
	Building	390100
	Land	273900
	Land improvement	33200
	Vehicle	132800
	Cash		830000

2) Depreciation expense building = (390100-31000/15) = 23940

3) Depreciation expense land improvement = 33200*40% = 13280