Timberly Construction negotiates a lump-sum purchase of several assets from a co

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 $840,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $504,900; land, $297,000; land improvements, $79,200; and four vehicles, $108,900. 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 $31,000 salvage value.
3. Compute the depreciation expense for year 2017 on the land improvements assuming a five-year life and double-declining-balance depreciation.

Explanation / Answer

1-a. Prepare a table to allocate the lump-sum purchase price to the separate assets purchased.

1b) Journal entry :

2) Journal entry :

3) Journal entry :

Cost Building (840000/990000*504900) 428400 Land (840000/990000*297000) 252000 Land improvement (840000/990000*79200) 67200 Vehicles (840000/990000*108900) 92400 Total 840000

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