Question

Problem 10-1A Plant asset costs; depreciation methods LO C1, P1 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, $524,700; land, $267,300; land improvements, $69,300; and four vehicles, $128,700. 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

Answer -

1-a. Answer -

Allocation of total cost	Appraised value	Percent of total appraised value	*	Total cost of acquisition	Apportioned cost
Building	$524700	53%	*	$820000	$434600
Land	$267300	27%	*	$820000	$221400
Land improvements	$69300	7%	*	$820000	$57400
Vehicles	$128700	13%	*	$820000	$106600
Total	$990000	100%			$820000

Calculation:

1. Building:

Percent of total appraised value = (Appraised value / Total Appraised value) * 100

Percent of total appraised value = ($524700 / $990000) * 100

Percent of total appraised value = 53%

2. Land:

Percent of total appraised value = (Appraised value / Total Appraised value) * 100

Percent of total appraised value = ($267300 / $990000) * 100

Percent of total appraised value = 27%

3. Land improvements:

Percent of total appraised value = (Appraised value / Total Appraised value) * 100

Percent of total appraised value = ($69300 / $990000) * 100

Percent of total appraised value = 07%

4. Vehicles:

Percent of total appraised value = (Appraised value / Total Appraised value) * 100

Percent of total appraised value = ($128700 / $990000) * 100

Percent of total appraised value = 13%

1-b. Answer -

Date	General Journal	Debit	Credit
Jan. 01	Building	$434600
	Land	$221400
	Land improvements	$57400
	Vehicles	$106600
	Cash		$820000

2. Answer -

Depreciation expense on building = $26907

Cost of building = $434600

Salvage value = $31000

Useful life = 15 years

Under straight line method:

Depreciation = (Cost of asset - Salvage value) / Useful life

Depreciation = ($434600 - $31000) / 15 years

Depreciation = $26907

3. Answer -

Depreciation expense on land improvements = $22960

Cost of land improvements = $57400

Useful life = 5 years

Under double declining balance method:

Depreciation = 2 * (Cost of asset / Useful life)

Depreciation = 2 * ($57400 / 5 years)

Depreciation = $22960