Question

Timberly Construction makes a lump-sum purchase of several assets on January 1 at a total cash price of $800,000. The estimated market values of the purchased assets are building, $429,750; land, $248,300; land improvements, $47,750; and four vehicles, $229,200.

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.

Timberly Construction makes a lump-sum purchase of several assets on January 1 at a total cash price of $800,000. The estimated market values of the purchased assets are building, $429,750; land, $248,300; land improvements, $47,750; and four vehicles, $229,200.

4. Compared to straight-line depreciation, does accelerated depreciation result in payment of less total taxes over the asset’s life?

Answer 1

Timberly Construction Part 1.1 - Allocation table Allocation of total cost Appraised value Building 429750 And 248300 Land Improvements 47750 Vehicles 229200 Total 955000 % of total appraised value Total cost of Acquisition Apportioned cost 0.45 800000 360000 0.26 800000 208000 0.05 800000 40000 0.24 800000 192000 1 800000 Cr ($) Jan.1 360000 208000 40000 192000 Part 1.2 - Journal entry Dr. ($) Building IAnd Land Improvements Vehicles Cash Part 2 - Journal entry Dep. Exp. - Building Acc. Dep. - building Part 3 - Journal entry Dep. Exp. - Land imp. Acc. Dep.-Land imp. 800000 Dec.31 22067 (360000 - 29000)/15 22067 Dec.31 16000 16000 SLM rate - 1/5 = 20 % DDB rate -20% *2 = 40 % Dep, = 40000 40 % = 16000 Part 4 - No Total taxes over the assets life is not less as in the earlier years less tax has to be paid but in the later years more tax has to be paid.