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 $800,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building. $444,000; land, $259,000 land improvements, $37,000, and four vehicles, $185,000. 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 Complete this question by entering your answers in the tabs below. Required 1A Required 18 Required 2 Required 3 Prepare a table to 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 %6 х X % Building Land 1 and immuemente %

Answer 1

Solution :

Requirement 1A :

Allocation of Total Costs	Appraised Value	% of Total Appraised Value	*	Total Cost of Acquistion	Apportioned Cost
Building	$ 444,000	48%	*	$ 800,000	$ 384,000
Land	$ 259,000	28%	*	$ 800,000	$ 224,000
Land Improvement	$ 37,000	4%	*	$ 800,000	$ 32,000
Vehicles	$ 185,000	20%	*	$ 800,000	$ 160,000
Total	$ 925,000	100%			$ 800,000

Requirement 1B :

Date	Account Title and Explanation	Debit	Credit
Jan 01	Building	$ 384,000
	Land	$ 224,000
	Land Improvements	$ 32,000
	Vehicles	$ 160,000
	Cash		$ 800,000
	(To record the purchases of Building, Land, Land Improvement, Vehicles)

Requirement 2 :

Depreciation on Bulding as per SLM Method = (Original Cost - Salvage Value) / Useful Life

= ($ 384,000 - $ 31,000) / 15

Depreciation for 2017 = $ 23,533.

Requirement 3 :

Rate of Depreciation as per Double Declining Method = (100% / Useful Life) * 2

= (100% / 5 Years) * 2

= 40%

Depreciation on Land and Improvement for 2017 = Carrying Value * Rate of Depreciation

= $ 32,000 * 40%

= $ 12,800

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