Question

Allocation of Package Purchase Price and Depreciation Methods

In an expansion move, James Company paid $2,190,000 for most of the property, plant, and equipment of a small manufacturing firm that was going out of business. Before agreeing to the price, James hired a consultant for $25,000 to appraise the assets. The appraised values were as follows:

Land	$384,000
Building	912,000
Equipment	960,000
Trucks	144,000
Total	$2,400,000

James issued two checks totaling $2,215,000 to acquire the assets and pay the consultant on April 1. James depreciated the assets using the straight-line method for the building and equipment, and the double-declining balance method for the trucks. Estimated useful lives and salvage values were as follows:

	Useful Life	Salvage Value
Building	30 years	$86,000
Equipment	10 years	70,000
Trucks	4 years	13,000

a. Calculate the amounts allocated to the various types of plant assets acquired on April 1.

Asset	Total
Land	Answer
Building	Answer
Equipment	Answer
Trucks	Answer

b. Prepare the April 1 journal entries to record the purchase of the assets and the payment to the consultant. Combine both cash disbursements into one journal entry.

General Journal
Date	Description	Debit	Credit
Apr.1	Land	Answer	Answer
	Building	Answer	Answer
	Equipment	Answer	Answer
	Trucks	Answer	Answer
	Cash	Answer	Answer
	To record purchase of plant assets and payment to consultant.

c. Prepare the December 31 journal entries to record depreciation expense for the year on the building, trucks, and equipment. (Round to the nearest dollar.)

General Journal
Date	Description	Debit	Credit
Dec. 31	AnswerAccumulated Depreciation - BuildingAccumulated Depreciation - EquipmentAccumulated Depreciation - TrucksBuildingDepreciation Expense - BuildingDepreciation Expense - EquipmentDepreciation Expense - TrucksEquipmentLandTrucks	Answer	Answer
	AnswerAccumulated Depreciation - BuildingAccumulated Depreciation - EquipmentAccumulated Depreciation - TrucksBuildingDepreciation Expense - BuildingDepreciation Expense - EquipmentDepreciation Expense - TrucksEquipmentLandTrucks	Answer	Answer
	To record depreciation on building.
Dec. 31	AnswerAccumulated Depreciation - BuildingAccumulated Depreciation - EquipmentAccumulated Depreciation - TrucksBuildingDepreciation Expense - BuildingDepreciation Expense - EquipmentDepreciation Expense - TrucksEquipmentLandTrucks	Answer	Answer
	AnswerAccumulated Depreciation - BuildingAccumulated Depreciation - EquipmentAccumulated Depreciation - TrucksBuildingDepreciation Expense - BuildingDepreciation Expense - EquipmentDepreciation Expense - TrucksEquipmentLandTrucks	Answer	Answer
	To record depreciation on equipment.
Dec. 31	AnswerAccumulated Depreciation - BuildingAccumulated Depreciation - EquipmentAccumulated Depreciation - TrucksBuildingDepreciation Expense - BuildingDepreciation Expense - EquipmentDepreciation Expense - TrucksEquipmentLandTrucks	Answer	Answer
	AnswerAccumulated Depreciation - BuildingAccumulated Depreciation - EquipmentAccumulated Depreciation - TrucksBuildingDepreciation Expense - BuildingDepreciation Expense - EquipmentDepreciation Expense - TrucksEquipmentLandTrucks	Answer	Answer
	To record depreciation on trucks.

Answer 1

James company - Case a Allocation table
Allocation of total cost	Appraised value	% of total appraised value	Total cost of Acquisition	Apportioned cost
Land	384000	0.16	2215000	354400
Building	912000	0.38	2215000	841700
Equipment	960000	0.4	2215000	886000
Trucks	144000	0.06	2215000	132900
Total	2400000	1		2215000
Whenever a lumpsum amount is paid for various purchases and we are provided with the appraised value of those purchases
then it is necessary to find the relative percentage of the appraised value and allocate the lump sum amount according to that
percentage to various purchases to find the cost of acquisition of each individual item.
Part b
Journal entry	Dr.($)	Cr.($)
Land	354400
Building	841700
Equipment	886000
Trucks	132900
Cash		2215000
Part c
Under SLM method, annual dep. Exp. = ( Purchase cost - salvage value ) / useful life
Building = ( 841700 - 86000 ) / 30 = $ 25190
Now, here the building is purchased on April 1, therefore, we will depreciate it for 9 months
25190 * 9/12 = $ 18893
Equipment = ( 886000 - 70000 ) * 1/10 * 9 /12 = $ 61200
Truck:-
Under DDB method, salvage value is ignored.
SLM rate =1/4 = 25%
DDB rate = 25 * 2 = 50 %
Dep. Exp. = 132900 * 50 % * 9/12 = $ 49838
Journal entry	Dr.($)	Cr.($)
Dep. Exp. - Building	18893
Dep. Exp. -Equipment	61200
Dep. Exp. -Trucks	49838
Acc. Dep. -Building		18893
Acc. Dep. -Equipment		61200
Acc. Dep. -Trucks		49838