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, $482,500; land, $308,800; land improvements, $38,600; and four vehicles, $135,100. 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.

Answer 1

1a
Allocation of total cost	Appraised Value	Percent of Total Appraised Value	x	Total cost of Acquisition	Apportioned Cost
Building	482,500	50%	x	800,000	400,000
Land	308,800	32%	x	800,000	256,000
Land improvements	38,600	4%	x	800,000	32,000
Vehicles	135,100	14%	x	800,000	112,000
Total	965,000	100%			800,000
b
Date	General Journal	Debit	Credit
1-Jan	Building	400,000
	Land	256,000
	Land improvements	32,000
	Vehicles	112,000
	Cash		800,000
2
Depreciation expense on building	24600	=(400000-31000)/15
3
Depreciation rate	40%	=1/5*2
Depreciation expense on land improvements	12800	=32000*40%