Question

Timberly Construction makes a lump-sum purchase of several assets on January 1 at a total cash price of $900,000. The estimated market values of the purchased 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:a. Prepare a table to allocate the lump-sum purchase price to the separate assets purchased.b. Prepare the journal entry to record the purchase.c. Compute the depreciation expense for year 2018 on the building using the straight-line method, assuming a 15-year life and a $27,000 salvage value.d. Compute the depreciation expense for year 2018 on the land improvements assuming a five-year life and double-declining-balance depreciation.e. Prepare a table to allocate the lump-sum purchase price to the separate assets purchased.

Answer 1

Answer:

Explanation:

Lumpsome cost of assets = 900,000

Estimated market value = 960,000

Asset          Cost         Percentage           Acquisition

Building     508,800      53                    53%*900,000    477,000

Land           297,600      31                      31%*900,000    279,000

Land            28,800         3                       3%*900,000      27,000

improvement            

Vehicles      124,800      13                       13%*900,000     117,000

                    960,000                                                          900,000

b)

Date                         General journal           Debit         Credit

January 1                       Building                    477,000

                                       Land                        279,000

                        Land improvement                   27,000

                                    Vehicles                        117,000

                                         Cash                                              900,000

C

Book value of Building = 477,000

salvage value = 27,000

Useful life = 15 years

Depreciable amount = 450,000

Depreciation = 450,000/15 = 30,000

d)

Useful life = 5 years

Normal declining rate = 100/5 = 20%

Double declining rate = 20%*2= 40%

Depreciation charge = 40%*27000

=10,800

100%/5