Plant asset costs; depreciation methods LO2 LO4 Timberly Construction negotiates a lu...

Plant asset costs; depreciation methods LO2 LO4

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, 2010, at a total cash price of $900,000 for a building,

land, land improvements, and four vehicles. The estimated market values of the assets are building,

$508,800; land, $297,600; land improvements, $28,800; and four vehicles, $124,800. 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. Prepare the

journal entry to record the purchase.

2. Compute the depreciation expense for year 2010 on the building using the straight-line method, assuming

a 15-year life and a $27,000 salvage value.

3. Compute the depreciation expense for year 2010 on the land improvements assuming a five-year life

and double-declining-balance depreciation.

4. Defend or refute this statement: Accelerated depreciation results in payment of less taxes over the

asset’s life.

Check (2) $30,000

(3) $10,800