E8-4 Computing and Recording Cost and Depreciation of Assets in a Basket Purchas

Question

E8-4 Computing and Recording Cost and Depreciation of Assets in a Basket Purchase (Straight-Line Depreciation) LO8-2, 8-3 Zeidler Company bought a building and the land on which the building is located for a total cash price of $186,500. The company paid transfer costs of $3,700. Renovation costs on the building were $19,540. An independent appraiser provided market values for the land, $280,000, and building, $1,120,000 before renovation Required: 1. Apportion the cost of the property on the basis of the appraised values. (Input all amounts as positive values.) Item A Purchase cost cost cost Building 19,540 Land

Explanation / Answer

1) Total cost to be apportioned = Cash Price+Transfer cost

= $186,500+$3,700 = $190,200

Cost will be apportioned to Land and Building in the ratio of their market values (i.e. in the ratio of $280,000 and $1,120,000 or 280:1,120)

Apportioned cost to Land = $190,200*(280/1,400) = $38,040

Apportioned Cost to Building = $190,200*(1,120/1,400) = $152,160

2) Journal Entry (Amount in $)

3) Depreciation = (Purchase cost - Residual value)/Useful life

= ($171,700 - $15,700)/12 yrs = $156,000/12 yrs = $13,000 per year

4) Carrying Value of Building at the end of 2 yrs = Purchase Cost - Dep. for 2 yrs

= $171,700 - ($13,000*2 yrs)

= $171,700 - $26,000 = $145,700

Carrying value of land = $38,040 (Land is not depreciated)

Item Apportioned cost (A) Renovation cost (B) Purchase cost (A+B) Building $152,160 $19,540 $171,700 Land $38,040 $0 $38,040 Total $190,200 $19,540 $209,740

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