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 $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.

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%