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, 2015, 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, $427,800; land, $260,400; land improvements, $65,100; and four vehicles, $176,700. The company’s fiscal year ends on December 31.

1.1

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

1.2

Prepare the journal entry to record the purchase.

2.Compute the depreciation expense for year 2015 on the building using the straight-line method, assuming a 15-year life and a $28,000 salvage value. (Round your answers to the nearest whole dollar.)

3.

Compute the depreciation expense for year 2015 on the land improvements assuming a five-year life and double-declining-balance depreciation.

1.1

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

Explanation / Answer

1) Allocation of Lump sum Purchase price to Seperate Asset purchased

The total Market value of all assets purchased = 427800+260400+65100+176700 = 930000

The Percent allocation will be determined from the overall market value of Assets

Building = 427800/930000=0.46

LAnd = 260400/930000 = 0.28

Land Improvements = 65100/930000 = 0.07

Four Vehicles = 176700/930000 = 0.19

This Percent allocation will be used in actual purchase of all the assets with CAsh

Building = 820000x.46 = $377200

LAnd = 820000x.28 =$229600

LAnd Improvements = 820000x0.07 =$57400

Four Vehicles = 820000x0.19 = $155800

2) Straight line Depreciaiton on Building with useful life of 15 years and salvagwe value of $28000

Building = 377200-28000 = $349200/15 = $23280

3) Double declining balance method on land improvements

Land Improvements = $57400, useful life = 5 years

straight line depreciation rate = 1/5 = 20%

Double declining balance rate = 2 x straight line depreciation rate x book value at the beginning

= 2x20% x 57400 = 22960

Particulars Amount($) Amount($) Building 377200 Land 229600 LAnd Improvements 57400 Four Vehicles 155800 To cash 820000

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