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 $900,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $508,800; land, $297,600; land improvements, $28,800; and four vehicles, $124,800. 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 $27,000 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) Allocation

Allocation of total Cost	Appraised value	Percent of total appraised value	Total Cost of acquisition	Apportioned Cost
Building	508800	53%	900000	477000
Land	297600	31%	900000	279000
Land improvement	28800	3%	900000	27000
Vehicle	124800	13%	900000	117000
Total	960000	100%		900000

2) Journal entry

date	account and explanation	Debit	Credit
Jan 1	Building	477000
	Land	279000
	Land improvement	27000
	Vehicle	117000
	Cash		900000

3) Depreciation expense on building = (477000-27000/15) = 30000

4) Depreciation expense on land improvement = 27000*40% = 10800