Question

In: Accounting

1. Millburn Company has acquired a property that included both land and a building for $530,000....

1. Millburn Company has acquired a property that included both land and a building for $530,000. The company hired an appraiser who has determined that the market value of the land is $320,000 and that of the building is $480,000.

Prepare the journal entry to record the purchase of these assets. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)

2. Calculate the depreciation expense using the straight-line and units-of-production methods for all years for the following operating asset.

Cost $65,000

Salvage value $5,000

Expected useful life is 4 years and total expected output is 150,000 units as follows:

Yr. 1 70,000

Yr. 2 35,000

Yr. 3 25,000

Yr. 4 20,000

Solutions

Expert Solution

Total market value of land and building -: ($320,000 + $480,000) = $800,000

This means that land value consists of 40% of the total value fair value of land and building (i.e.. $320,000 / $800,000)

Balance 60% is for value of building.

Now as per the cost principle, the Company can record the cost of only $530,000

So Value of land will be $530,000 X 40% = $212,000

Value of building -: $530,000 X 60% = $318,000

Journal Entry for recording of this transaction

Land A/c Dr. $212,000

Building A/c Dr. $318,000

To Cash A/c $530,000

(Being the Company purchased land and building during the year)

Computation of depreciation

Cost of the asset -: $65,000

Salvage Value -: $5,000

Depreciable asset -: $60,000 (i.e.. $65,000 - $5,000)

Useful life -: 4 years

Depreciation under straight line basis

Yearly depreciation = $60,000 / 4 = $15,000

So under straight line method of depreciation, yearly depreciation will be $15,000

Depreciation under unit of production method

Depreciable asset (as computed above) -: $60,000

	Units to be produced	Depreciation p.a.
Year 1	70000	$ 28,000
Year 2	35000	$ 14,000
Year 3	25000	$ 10,000
Year 4	20000	$ 8,000
	150000	$ 60,000

Depreciation for Year 1 -: $60,000 X 70,000 / 150,000 = $28,000

Year 2-: $60,000 X 35,000 / 150,000 = $14,000

Similarly for other year 3 and year 4 needs to be computed.

ekkarill92 answered 1 year ago

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