Question

Timberly Construction negotiates a lump-sum purchase of several assets from a company that is going out...

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 $820,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $484,500; land, $304,000; land improvements, $57,000; and four vehicles, $104,500. 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.

Homework Answers

Answer #1
1a
Allocation of total cost Appraised Value Percent of Total
Appraised Value
x Total cost of
Acquisition
Apportioned Cost
Building 484,500 51% x 820,000 418,200
Land 304,000 32% x 820,000 262,400
Land improvements 57,000 6% x 820,000 49,200
Vehicles 104,500 11% x 820,000 90,200
Total 950,000 100% 820,000
b
Date General Journal Debit Credit
1-Jan Building 418,200
Land 262,400
Land improvements 49,200
Vehicles 90,200
Cash 820,000
2
Depreciation expense on building 25813 =(418200-31000)/15
3
Depreciation rate 40% =1/5*2
Depreciation expense on
land improvements
19680 =49200*40%
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