Question

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, $439,300; land, $286,500; land improvements, $28,650; and four vehicles, $200,550.

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 $29,000 salvage value.
3. Compute the first-year depreciation expense on the land improvements assuming a five-year life and double-declining-balance depreciation.

PLease answer in thus format

Answer 1

1-a. Allocate the lump-sum purchase price to the separate assets purchased.

Allocation of total cost	Appraised Value	Percent of Total Appraised Value		*	Total cost of Acquisition	Apportioned Cost
Building	$439300	46	%	*	$830000	(830000*46%)= $381800
Land	286500	30	%	*	$830000	(830000*30%)= 249000
Land improvements	28650	3	%	*	$830000	(830000*3%)= 24900
Vehicles	200550	21	%	*	$830000	(830000*21%)= 174300
Total	$955000	100	%			$830000

Calculation of Percent of Total Appraised Value

Building= $439300*100/955000= 46%

Land= $286500*100/955000= 30%

Land improvements= $28650*100/955000= 3%

Vehicles= $200550*100/955000= 21%

1-b. Prepare the journal entry to record the purchase.

Date	General Journal	Debit	Credit
Jan 01	Building	$381800
	Land	$249000
	Land improvements	$24900
	Vehicles	$174300
	Cash		$830000
	(To record the cost of lump-sum purchase)

2. Compute the first-year depreciation expense on the building using the straight-line method, assuming a 15-year life and a $29000 salvage value.

Depreciation expense= (Cost-Salvage value)/Number of useful life

= $(381800-29000)/15= $23520

Depreciation expense on building

$23520

3. Compute the first-year depreciation expense on the land improvements assuming a five-year life and double-declining-balance depreciation.

Depreciation rate= 100/5*2= 40%

Depreciation expense= $24900*40%= $9960

Depreciation expense on land improvements

$9960