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, 2015, at a total cash price of $820,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $492,900; land, $260,400; land improvements, $55,800; and four vehicles, $120,900. The company’s fiscal year ends on December 31. Required: 1.1 Prepare a table to allocate the lump-sum purchase price to the separate assets purchased. 1.2 Prepare the journal entry to record the purchase. 2. Compute the depreciation expense for year 2015 on the building using the straight-line method, assuming a 15-year life and a $32,000 salvage value. (Round your answers to the nearest whole dollar.) 3. Compute the depreciation expense for year 2015 on the land improvements assuming a five-year life and double-declining-balance depreciation.

1.1

Prepare a table to allocate the lump-sum purchase price to the separate assets purchased.

1.2

Prepare the journal entry to record the purchase.

2. Compute the depreciation expense for year 2015 on the building using the straight-line method, assuming a 15-year life and a $32,000 salvage value. (Round your answers to the nearest whole dollar.)

3.

Compute the depreciation expense for year 2015 on the land improvements assuming a five-year life and double-declining-balance depreciation.

Answer 1

1.1) asset FMV purchase price

building $492,900 $434,600

land $260,400 $229,600

land improvements $55,800 $49,200

four vehicles $120,900 $106,600

total $930,000 $820,000

1.2) January 1, 2015, assets purchased

Dr Building 434,600

Dr Land 229,600

Dr Land improvements 49,200

Dr Vehicles 106,600

Cr Cash 820,000

2) depreciation expense (building) for 2015 = ($434,600 - $32,000) / 15 = $26,840 per year

3) depreciation expense (land improvements) for 2015 = $49,200 x 2 x 1/5 = $19,680

Step-by-step explanation:

total cash $820,000:

FMV building $492,900, ($492,900/$930,000) x $820,000 = $434,600

FMV land $260,400, ($260,400/$930,000) x $820,000 = $229,600

FMV land improvements $55,800, ($55,800/$930,000) x $820,000 = $49,200

FMV four vehicles $120,900, ($120,900/$930,000) x $820,000 = $106,600

total FMV = $930,000