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 $810,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $446,200; land, $320,100; land improvements, $48,500; and four vehicles, $155,200. 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 $32,000 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	446,200	46%	x	810,000	372,600
Land	320,100	33%	x	810,000	267,300
Land improvements	48,500	5%	x	810,000	40,500
Vehicles	155,200	16%	x	810,000	129,600
Total	970,000	100%			810,000
b
Date	General Journal	Debit	Credit
1-Jan	Building	372,600
	Land	267,300
	Land improvements	40,500
	Vehicles	129,600
	Cash		810,000
2
Depreciation expense on building	22707	=(372600-32000)/15
3
Depreciation rate	40%	=1/5*2
Depreciation expense on land improvements	16200	=40500*40%