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 $820,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $515,700; land, $315,150; land improvements, $57,300; and four vehicles, $66,850. 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.

	Allocation of total cost Appraised Value Percent of Total Appraised Value x Total cost of Acquisition Apportioned Cost Building % x Land % x Land improvements % x Vehicles % x Total $0 0 % $0

Record the costs of lump-sum purchase.

Date General Journal Debit Credit Jan 01 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 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

Answer 1

• All working forms part of the answer
• Requriement 1

Allocation of total cost	Appraised Value	Percent of Total Appraised Value		x	Total cost of Acquisition	Apportioned Cost
Building	$      515,700.00	54.00%		x	$     820,000.00	$    442,800.00
Land	$      315,150.00	33.00%		x	$     820,000.00	$    270,600.00
Land improvements	$        57,300.00	6.00%		x	$     820,000.00	$     49,200.00
Vehicles	$        66,850.00	7.00%		x	$     820,000.00	$     57,400.00
Total	$      955,000.00	100.00%			$     820,000.00	$    820,000.00

• Requirement 2

Date	General Journal	Debit	Credit
Jan-01	Building	$      442,800.00
	Land	$      270,600.00
	Land improvements	$        49,200.00
	Vehicles	$        57,400.00
	Cash		$        820,000.00

• Requirement 3

A	Cost	$          442,800.00
B	Residual Value	$            32,000.00
C=A - B	Depreciable base	$          410,800.00
D	Life [in years]	15
E=C/D	Annual SLM depreciation	$            27,386.67

Answer = $ 27,387

• Requirement 4

A	Cost	$            49,200.00 Land Improvement
B	Residual Value	$                           -
C=A - B	Depreciable base	$            49,200.00
D	Life [in years]	5
E=C/D	Annual SLM depreciation	$              9,840.00
F=E/C	SLM Rate	20.00%
G=F x 2	DDB Rate	40.00%
Year	Beginning Book Value	Depreciation rate	Depreciation expense
1	$       49,200.00	40.00%	$         19,680.00

Answer = $ 19,680