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Required information [The following information applies to the questions displayed below] Timberly Construction makes a lump-sum purchase of several assets on January 1 at a total cash price of $830,000
Required information [The following information applies to the questions displayed below]
Timberly Construction makes a lump-sum purchase of several assets on January 1 at a total cash price of $830,000. The estimated market values of the purchased assets are building, $479,400; land, $300,800; land improvements, $75,200; and four vehicles, $84,600.
Required:
1-a. Allocate the lump-sum purchase price to the separate assets purchased. 1-b. Prepare the journal entry to record the purchase. 2. Compute the first-year depreciation expense on the building using the straight-line method, assuming a 15-year life and a $29,000 salvage value. 3. Compute the first-year depreciation expense on the land improvements assuming a five-year life and double-declining-balance depreciation.
Expert Solution
1 -a) Allocation of Lump Sum Purchase price to separate assets (Amounts in $):
| Allocation of Total Cost | Appraised Value | Percent of Total Appraised Value | * | Total cost of Acquisition | Apportioned Cost |
| Building | 479,400 | 0.51 | * | 830,000 | 423,300 |
| Land | 300,800 | 0.32 | * | 830,000 | 265,600 |
| Land improvements | 75,200 | 0.08 | * | 830,000 | 66,400 |
| Vehicles | 84,600 | 0.09 | * | 830,000 | 74,700 |
| Total | 940,000 | 100% | 830,000 |
1 b) Journal Entry (Amounts in $):
| Date | General Journal | Debit | Credit |
| Jan-01 | Building | 423,300 | |
| Land | 265,600 | ||
| Land Improvements | 66,400 | ||
| Vehicles | 74,700 | ||
| Cash | 830,000 | ||
| (To record the cost of lump sum purchase) |
2) Depreciation Expense on Building = (Cost - Salvage Value)/Useful Life
= ($423,300 - $29,000)/15 yrs = $26,287
Therefore depreciation expense on building is $26,287.
3) Double declining depreciation rate = (1/Useful life)*2*100
= (1/5 yrs)*2*100 = 40%
Depreciation expense of land improvements for first year = Cost*Double declining depreciation rate
= $66,400*40% = $26,560
Therefore depreciation expense on land improvements for the first year is $26560.
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