Racerback Company negotiates a lump-sum purchase of several assets from a contractor who is relocating. The purchase is completed on January 1, 2011, at a total cash price of $1,610,000 for a building, land, land improvements, and six trucks. The estimated market values of the assets are building, $784,800; land, $540,640; land improvements, $226,720; and six trucks, $191,840. The company’s fiscal year ends on December 31.
Required
1. Prepare a table to allocate the lump-sum purchase price to the separate assets purchased (round percents to the nearest 1%). Prepare the journal entry to record the purchase.
2. Compute the depreciation expense for year 2011 on the building using the straight-line method, assuming a 12-year life and a $100,500 salvage value.
3. Compute the depreciation expense for year 2011 on the land improvements assuming a 10-year life and double-declining-balance depreciation.
Analysis Component
4. Defend or refute this statement: Accelerated depreciation results in payment of more taxes over the asset’s life.
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