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 $830,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $529,200; land, $284,200; land improvements, $58,800; and four vehicles, $107,800. The companyโs 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

Building 448,200 debit

Land 240,700 debit

Land Improvements 49,800 debit

Vehicles 91,300 debit

Cash 830,000 credit

--to record acquisition of several assets--

depreciation expense 27,813.33 debit

acc dep equipment 27,813.33 credit

--to record depreciation expense for the year--

depreciation expense 23,520‬ debit

acc dep land improvements 23,520‬ credit

--to record depreciation expense for the year--

Step-by-step explanation:

We weight the market value of each item and then, we multiply by the amount of lump-sum used to acquire the assets

`\left[\begin{array}{cccc}Item&Value&Weight&Allocated\\Building&529200&0.54&448200\\Land&284200&0.29&240700\\Land Improvements&58800&0.06&49800\\Vehicles&107800&0.11&91300\\Total&980000&1&830000\\\end{array}\right]`

building depreciation:

448,200 - 31,000 = depreciable amount

depreciable amount = 417,200

417,200 / 15 years of useful life = 27.813,33

land improvements:

double declining rate 2 / useful life = 2/5 = 0.4

first year depreciation 58,800 x 0.4 = 23,520‬