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 golng out of business. The purchase is completed on January 1, 2017, at a total cash price of $900,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building. $508,800; land, $297600; land improvements, $28,800; and four vehicles, $124,800. 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 Compoute the depreciation expense for year 2017 on the building using the straight-ine method, assuming a 15-yer life and a $27,000 salvage value. 3. Compute the depreciation expense for year 2017 on the land improvements assuming a five- year lif and do balance depreciation.

Explanation / Answer

Allocation of Total Cost Appraised value % of Appraised * Total cost of Acquisition Apportioned Cost vallue Building 508,800 53% * 900,000 477000 land 297600 31% * 900,000 279000 land improvement 28800 3% * 900,000 27000 Vehicles 124800 13% * 900,000 117000 Total 960000 100% 900,000 900000 Jan 012017 Building Ddr. 477000 land Dr. 279000 Land improvement Dr. 27000 Vehicles equipment Dr. 117000        Cash Account 900,000 Depreciation on Building in 2017 Cost of Building: 477000 Salvage value: 27000 Life: 15 Depreciable amount 450000 (Cst-Salvage) Annual dep 15000 (Depreciable Amt/Life) Depreciation for 2017= $15,000 Depreciation on land improvement in 2017 Cost of Improvements: 27000 SLM rate (100/5) 20% DDM rate of dep 40% Depreciation in 2017: 27000 *40% = 10800

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