Question

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Problem 9-7A PPE costs; partial year's depreciation; alternative methods LO1,2,3 eXcel CHECK FIGURES: 2. $31,320; 3. $21,000 Logic Co. recently negotiated a lump-sum purch of business. The purchase was completed on March 1, 2017, at a total cash price of $1,260,000 a

Answer 1

1	Assets			Market value	% of total market value	*	Total cost of acquisition	=	Allocated purchase price
	Building			652800	48%		1260000		604800
	Land			462400	34%		1260000		428400
	Land improvements			68000	5%		1260000		63000
	Vehicles			176800	13%		1260000		163800
				1360000					1260000
	Journal entry:
	Date	General journal				Debit	Credit
	Mar 1.	Building				604800
		Land				428400
		Land improvements				63000
		Vehicles				163800
		Cash					1260000
2	Depreciation expense using straight line method=(Cost - Residual value)/Useful life=(604800-41040)/15=$ 37584
	But, the building purchased on March 1. Hence,depreciation to be computed for Mach to December (10 months)
	Depreciation for 2017=37584*(10/12)=$ 31320
3	Depreciation rate as per double declinig balance method=2*(1/useful life)*100=2*(1/5)*100=40%
	Depreciation for 2017-10 months (mar to dec)=cost*Depreciation rate=63000*40%*(10/12)=$ 21000
	Aalysis:
	Depreciaton to be computed from the when asset is ready for use and not when the asset was actually put to use
	Here, Asset purchased on march 1 and and put to service on May 23.
	Hence,depreciation to be computed from march 1.
	This will not affect answers in part 2 and 3.