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 $830,000 for a building, land, land improvements, and four vehicles. The estimated market values of the assets are building, $444,150; land, $255,150; land improvements, $56,700; and four vehicles, $189,000. 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 $28,000 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.

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 $28,000 salvage value

Depreciation = (390100-28000)/15 = 24140

3. Compute the depreciation expense for year 2017 on the land improvements assuming a five-year life and double-declining-balance depreciation.

Straight line dep rate = 100/5=20%

Double decline rate = 20%*2=40%

Depreciation expenses = 49800*40% = 19920

Estimated market value Allocated value Building 444150 390100 Land 255150 224100 Land improvements 56700 49800 Four vehicles 189000 166000 Total 945000 830000

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