Question

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, $472,850; land, $289,500; land improvements, $77,200; and four vehicles, $125,450.

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.

Answer 1

1-a. Allocate the lump-sum purchase price to the separate assets purchased.
Allocation of total cost	Appraised Value (A)	Percent of Total Appraised Value (B)	Total cost of Acquisition (C )	Apportioned Cost D = C*B
Building	472,850	49%	830,000	406,700
Land	289,500	30%	830,000	249,000
Land improvements	77,200	8%	830,000	66,400
Vehicles	125,450	13%	830,000	107,900
Total	965,000			830,000
1-b. Prepare the journal entry to record the purchase.
Date	General Journal	Debit	Credit
Jan-01	Building	406,700
	Land	249,000
	Land improvements	66,400
	Vehicles	107,900
	Cash		830,000
	(To record the cost of lump-sum purchase)
2. Compute the first-year depreciation expense on the building using the straight-line method, assuming a 15-year life and a $29000 salvage value.
Depreciation expense= (Cost-Salvage value)/Number of useful life
Depreciation expense= (406700-29000)/15
Depreciation expense= $ 25,180
Depreciation expense on building	$25180
3. Compute the first-year depreciation expense on the land improvements assuming a five-year life and double-declining-balance depreciation.
Depreciation rate= 100/5*2= 40%
Depreciation expense= $66400*40%= $26560
Depreciation expense on land improvements	$26560