Question

Problem 9-8A PPE costs; partial year's depreciation; alternative methods L01, 2, 3 CHECK FIGURES: 2. $31,320; 3. $21,000 Logic Co. recently negotiated a lump-sum purchase of several assets from a company that was going out of business. The purchase was completed on March 1, 2020, at a total cash price of $1,260,000 and included a 673

Answer 1

1. Schedule allocating purchase price to each individual based on market value.
Total cash price = $1,260,000

	Current Market Value	Percentage of Total	Purchase Price Allocation
Building	$652,800	48%	$604,800
Land	$462,400	34%	$428,400
Land Improvements	$68,000	5%	$63,000
Vehicles	$176,800	13%	$163,800
Total	$1,360,000	100%	$1,260,000

Journal Entry to record the lump sum purchase:

Building   Dr    $604,800

Land     Dr   $428,400

Land Improvements Dr $63,000

Vehicles Dr $163,800

To Cash $1,260,000

(Being purchase of assets recorded)

2. Annual Depreciation expense = (Building Purchase Price - Salvage Value)/Useful Life = ($604,800 - $41,040)/15 = $37,584

In 2020, the building was used for 10 months

2020 depreciation expense = $37,584 * 10/12 = $31,320

3. Annual Depreciation Expense for 1st year = 2 * (Purchase Value/ Useful Life) = 2 * ($63,000/5) = $25,200

In 2020, land improvements was used for 10 months

2020 depreciation expense = $25,200 * 10/12 = $21,000

Analysis - If the assets are put in service on May 23, 2020, then the depreciation for 2020 will be calculated for 7 months for building and land improvements as the depreciation is calculated to the nearest whole month.

2. Depreciation for 2020 for building = $37,584 * 7/12 = $21,924

3. Depreciation for 2020 for land improvements = $25,200 * 7/12 = $14,700