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, $485,100; land, $297,000; land improvements, $39,600; and four vehicles, $168,300. The company’s 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 $32,000 salvage value. 3. Compute the depreciation expense for year 2017 on the land improvements assuming a five-year life and double-declining-balance depreciation.

Compute the depreciation expense for year 2017 on the land improvements assuming a five-year life and double-declining-balance depreciation.

	Depreciation expense on land improvements

Compute the depreciation expense for year 2017 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.)

	Depreciation expense on building

Answer 1

Answer

• All working forms part of the answer
• Requirement 1

Allocation of Total Cost	Appriased Value	% of total appraised value	Total cost of acquisition	Apportioned Cost
Building	$                           485,100.00	49.0%	$                   830,000.00	$                                      406,700.00
Land	$                           297,000.00	30.0%	$                   830,000.00	$                                      249,000.00
Land Improvements	$                             39,600.00	4.0%	$                   830,000.00	$                                        33,200.00
Vehicles	$                           168,300.00	17.0%	$                   830,000.00	$                                      141,100.00
Total	$                           990,000.00	100%		$                                      830,000.00

Date	Accounts title	Debit	Credit
Jan-01	Building	$             406,700.00
	Land	$             249,000.00
	Land Improvements	$               33,200.00
	Vehicles	$             141,100.00
	Cash		$                   830,000.00
	(lumpsum puchases recorded)

• Requirement 2

Depreciation expense on Building for 2017 = $ 24,980

A	Cost	$          406,700.00
B	Residual Value	$            32,000.00
C=A - B	Depreciable base	$          374,700.00
D	Life [in years]	15
E=C/D	Annual SLM depreciation	$            24,980.00

• Requirement 3

Depreciation expense on Land Improvements = $33200 x 40% = $ 13,280

A	Cost	$            33,200.00
B	Residual Value	$                           -
C=A - B	Depreciable base	$            33,200.00
D	Life [in years]	5
E=C/D	Annual SLM depreciation	$              6,640.00
F=E/C	SLM Rate	20.00%
G=F x 2	DDB Rate	40.00%